OSC warning RRSP scam
Ontario Securities Commission - November 19, 1999
of RRSP scam
TORONTO - The Ontario Securities Commission has issued a pre-emptive alert, warning investors of a scam targeting those desperate to get at money they have tied up in RRSPs.
OSC investigators say they issued the alert, even though they know of only one case in Ontario. But the OSC is worried the practice may become more widespread. The Quebec Securities Commission issued a similar warning after hearing about 4 occurrences in that province.
At its heart, the scheme is usually promoted as a way of accessing funds tied up in registered plans (like RRSPs, RRIFs, LIFs, and Locked-in RRSPs). Investors usually learn about the schemes through small classified ads placed in newspapers.
Investors are advised to buy shares in a company, using the money held in their registered plans. The company then offers to refund 70 to 80 per cent of the purchase price to the investor.
Another version of the scam has the company loaning 70 to 80 per cent of the purchase price back to the investor.
In either case, the OSC says the schemes are illegal. For one thing, the companies selling the shares are doing this without filing a prospectus, and their staff are not registered to sell securities.
The OSC also points out that the shares that are bought may have no market, so can't be re-sold. As well, the underlying companies are usually not legitimate. And if the company goes bankrupt, the investor may still have to repay any loan, even though the shares the investor bought are worthless.