Second Annual Seniors Summit Opening Statement
Director, Alabama Securities Commission
President, North American Securities Administrators Association
September 10, 2007
Second Annual Seniors Summit
Thank you Chairman Cox. On behalf of NASAA’s 67 state, commonwealth, district, provincial and territorial securities regulators, I am pleased to participate in the second annual Seniors Summit to highlight our activities in protecting senior citizens from investment fraud.
Let me say one thing at the outset. Only the lowest of the low intentionally seek to deprive retirees of the savings they have worked so hard for so many years to accumulate.
You will hear one consistent message from my colleagues as today’s event unfolds: The community of state securities regulators will continue our longstanding and active pursuit of criminals who seek to cheat seniors out of their hard-earned retirement savings.
We believe that every investor deserves protection, none more so than the growing numbers of seniors who are depending on every dollar of their savings for a financially secure retirement.
The senior initiative announced at NASAA’s Washington Spring Conference last year by NASAA and the SEC builds upon the efforts state securities regulators launched in 2003 to fight investment fraud targeting our nation’s seniors.
We are pleased to have the SEC and FINRA as our partners in our common mission to protect our nation’s seniors. The senior initiative that brings us together today reflects the long-standing collaborative relationship between state securities regulators, the SEC and FINRA and we believe it has and will continue to result in significant protections for senior investors.
Our most effective weapons against fraud are: vigorous enforcement, investor education, and innovative regulation. The states have long been active in all of these areas. And as we continue to strengthen our partnership including the AARP and others, we all bring unique resources, talents an expertise together to ensure a safe, secure, and dignified financial future for our citizens.
There are two types of senior abuse that we find especially troubling, — the “free lunch” seminars that have been the focus of our joint examinations for more than a year, and misleading professional designations, which we first alerted investors about in 2005.
We’ve all been invited to that “free” lunch or dinner investment seminar that we just “can’t afford to miss.”
The invitation I’m holding in my hand is filled with the recurrent themes that typically appear in these enticing ads: a free gourmet meal, tips on how to earn great returns while eliminating market risk, and a warm welcome to spouses of the invitees.
Many invitations use words such as “guaranteed,” “can’t lose principal,” or “no-risk investment.”
Nothing will be sold, and there is NO cost or obligation. Except the high-pressure sales pitch comes with a call a few days later from a “senior specialist” salesman.
In a few minutes you will hear about the troubling violations our joint examinations uncovered. They range from outright lies and the conversion of investor funds to more sophisticated forms of abuse.
In many cases, the salesperson recommends that the senior sell securities they currently own and use the proceeds to purchase indexed or variable annuities, products that are often flagrantly unsuitable for seniors.
Additionally, these recommendations often constitute the dissemination of financial advice for compensation without an investment adviser license, a violation of state securities law.
For the past four years, when we determined that the practice of targeting seniors was one of national scope, state securities regulators have been focused on aggressively investigating and bringing cases to stop the spread of abusive sales practices that often emanate from these free meal events.
From steakhouses in Arizona, to country clubs in Virginia, the retirement savings of seniors, as well as those nearing retirement, are being targeted by those who – putting their personal interests ahead of their clients – would impoverish a thousand vulnerable seniors if it meant another ill-gotten dollar in their pockets.
Clearly, there is no such thing as a “free lunch.”
Just ask the older investors in Missouri who lost $1.3 million over a two-year period to a man they met through a free lunch seminar. Missouri securities regulators took action against this man and discovered that he had conducted seminars and provided information about tax, investment, and insurance – but not the facts and risks about the investments, or his felony fraud conviction.
Or the older victims in Colorado who lost $600,000 in retirement savings through “free lunch” seminars at retirement centers. Colorado securities regulators, working with local law enforcement authorities, won a securities fraud conviction and 20-year prison sentence for this conman.
Or the California seniors who invested $15 million through a man who offered seminars with free lunches at country clubs and high-end restaurants. The California Department of Corporations charged this individual with fraudulently operating as an investment adviser.
Just this past Friday, Hawaii state securities regulators and the SEC issued a joint release involving $5 million of retirement funds from 75 retirees. My colleague Tung Chan, is here with us today.
State securities regulators also continue to see the use of impressive-sounding but sometimes highly misleading titles and professional designations at these events.
Many of these designations imply a special expertise in addressing the financial needs of seniors – all for the purpose of gaining a senior’s trust. Often these designations are used in conjunction with the “free lunch” seminars, or highlighted in mass mailings, business cards, and other promotional materials.
Earlier this year, NASAA created a task force to address the “senior designations” problem. We found that a substantial number of our regulators had taken an enforcement action against individuals who had used a senior designation in a deceptive manner, and investigations are continuing.
We are responding to the problem of misrepresentations and fraudulent use of senior designations with innovative regulatory proposals and actions, such as those of our Massachusetts member, Secretary of the Commonwealth Bill Galvin.
The NASAA Task Force also has been working on a model rule suitable for adoption by every NASAA member which would create a separate violation of law to use a designation to mislead investors. We will urge its adoption in every jurisdiction.
The multi-front offensive launched by state and federal securities regulators and today’s Summit is a testament to the fact that senior citizens remain a target for unscrupulous sales persons — and that further unified action is necessary to punish and deter the wrongdoing.
We look forward to working with our colleagues at the SEC and FINRA toward an effective solution to ensure that the retirement savings of seniors remain in their pockets and out of the hands of liars, cheaters, and thieves.
September 10, 2007