The B.C. Securities Commission (BCSC) is highlighting the perils of the “trust trap” as part of Fraud Prevention Month across Canada.
“Fraudsters exploit the trust and friendship that exists in tight-knit groups,” said Doug Muir, the BCSC’s director of enforcement, via a statement March 2. “Investors need to do their own research before making an investment, and shouldn’t just rely on advice from their friends, family or co-workers.”
Women and millennials are particularly vulnerable, according to the commission.
Recently, a so-called trust trap netted minimal penalties for formerly banned trader Richard Gozdek, a White Rock resident.
Last December, Gozdek was convicted of breaching his securities ban and sentenced to one-year probation in addition to a $5,000 fine. He was also ordered to pay $10,000 back to investor Sheila Crittin, a Saskatchewan resident, who Abbotsford Provincial Court Judge Robert Gunnell said “doesn’t seem to be particularly sophisticated” in terms of handling investments.
In fact, “for some reason Ms. Crittin thought Mr. Gozdek was a person she could trust in that he had done well for himself in business,” stated Gunnell in his reasons for judgment against Gozdek.
It’s not known what sort of relationship the two had, nor Crittin’s age.
The BCSC stated it conducted research on human reactions to dubious investment pitches made by family, friends and close associates. The regulator found nearly half of young adults in B.C. would consider putting money into a dubious investment offer if it came from a friend or family member.
“Whether the offer came from a friend or family member or just a random person at a social event can make a big difference in vulnerability, depending on someone’s age and gender.”
People aged 35-54 were half as likely as young adults to consider a dodgy investment offer if it came from friends or relatives. The research also showed women were more susceptible than men.
“The percentage of women intrigued by such an offer was 13 points higher when it came from a friend or relative. By comparison, the source of the offer seemed to make less of difference for men, for whom the gap was only six points.”
In the case of Crittin, she was informed by Gozdek of Worldwide Marijuana and gave him $10,000 as an investment (even using her husband’s RRSP).
Gozdek sent Crittin promotions that were, according to the judge, “the type of things some might think you might find in your junk email folder. The type of thing that I think if I received I would probably delete.”
Worldwide Marijuana was delisted from the Canadian Securities Exchange in 2016 and is now named Endocan Solutions, a shell company with $4,375 in assets.
Gozdek got a small fine and probation for pleading guilty to violating his five-year securities ban – issued in 2013 after he admitted to illegally selling shares in Armadillo, a low-value Nevada oil company claiming assets in Oklahoma.
The judge noted the sentence was a joint submission from Gozdek and the Crown prosecutor. Gozdek’s violation was summarized as a “technical breach” and not an intentional one. After a BCSC investigation, Gozdek paid Crittin back the money she invested.
Gozdek also paid back $65,062 from his 2013 settlement agreement and was free to return to business in the capital markets in June 2018, according to the BCSC.
Investors can take the BCSC’s new scenario-based quiz to test their ability to spot suspicious investment opportunities, read the affinity fraud warning signs or contact the BCSC if they have a concern about investment fraud.
