RRU in the Media
Cash crimes: Investment fraud in Canada
When it comes to financial investments, Assoc. Prof. Mark Lokanan has two words of advice.
“Investment advisors are swindling people and innocent people are getting hurt,” says Lokanan, who teaches in Royal Roads University’s School of Business.
Lokanan, one of the few financial crimes and investigations experts in Canada, says there’s been a surge in cases of investment fraud in Canada in recent years, much of it perpetrated by some of the country’s largest brokerage firms.
Between 2003 and 2007, Lokanan says about a third of investment brokers had complaints filed against them with the Investment Dealers Association, now known as the Investment Industry Regulatory Organization of Canada (IIROC), the body responsible for overseeing Canadian investment dealers and traders.
Since IIROC doesn’t have the ability to enforce criminal penalties, it can do little to curb regulatory violations such as unauthorized trading and the misappropriation of funds, Lokanan says.
“My latest findings show nothing has really changed. IIROC’s system of compliance is not providing enough deterrence to make a dent in financial crimes in Canada,” Lokanan says.
According to IIROC’s July 2018 uncollected fines report, more than 200 IIROC members or former members have outstanding fines ranging from $5,000 to more than $2 million.
Lokanan says deterring regulatory offences continues to be a challenge because there’s little recourse. Penalties are lax, the courts are overloaded and the police lack the expertise to investigate these cases, Lokanan says.
“Financial fraud is very difficult to prosecute in court because it’s difficult to prove. It’s very serious stuff and in Canada, we don’t know what to do about it,” he says.
Lokanan says all too often cases are delayed and eventually stayed.
“These are not like street crimes. These cases involve a huge paper trail. It takes a significant amount of time to go through one case. One case can take more than six years to litigate and prosecute.”
Lokanan’s research over the last decade has brought together accounting and criminology and has focused largely on securities fraud and money laundering in the BC real estate sector.
He says he’s driven by a desire to inform the people—many of whom are vulnerable to fraud—about ways to protect themselves and their investments.
Lokanan says seniors and retirees can be targeted if they’re sitting on large amounts of cash.
“I want to reach them with my research, not just the academic community.”
When considering making an investment, Lokanan says prior research is essential. IIROC’s website is a good starting point. It includes information about advisors employed by IIROC-regulated firms along with their qualifications, background and any applicable disciplinary information.
Even with a clear record, Lokanan cautions against putting too much trust in your advisor.
“Be skeptical, ask questions and make sure you know how to read your quarterly reports,” Lokanan says.
“You can’t stop investment fraud but you can minimize it and it starts with financial education.”