State Securities Cops: Senior Investors Facing a Perfect Storm for Investment Fraud

State Regulators Announce Initiatives to Help Seniors Weather Dangerous Times

WASHINGTON (September 4, 2003)– Volatile stock markets, record low interest rates, rising health care costs, and increasing life expectancy, have combined to create a perfect storm for investment fraud against senior investors, state securities regulators warned today.

The North American Securities Administrators Association (NASAA), which represents state and provincial securities regulators in the United States, Canada and Mexico, alerted senior investors to the dangers of investment fraud and urged them to take control of their financial health. To help, state securities regulators announced today a series of investor education initiatives and unveiled an online Senior Investor Resource Center on the NASAA website.

“State securities regulators are deeply concerned that a perfect storm for investment fraud is brewing and our nation’s 35 million seniors are most at risk,” said Christine A. Bruenn, NASAA President and Maine Securities Administrator. “To a senior living on a fixed income, no amount of money lost is too small, and could mean the difference between a secure and dignified retirement or a life of uncertainty and despair.” Bruenn said.

Bruenn said the collapse of the bubble economy, coupled with interest rates at 40-year-lows, and rising costs for medical insurance, prescription drugs and basic living expenses, have brought con artists from the side streets and back alleys to Main Street where older investors live. “These are dangerous times for seniors. They need education, they need protection,” she said.

“Millions of people who are retired or soon-to-be retired are becoming increasingly concerned, some even desperate, about their finances – and are more vulnerable than ever to investment fraud and abuse,” Bruenn said. “Concerned and desperate people can make bad decisions and are tempting targets for con men. Concerned and desperate people need more, not fewer, cops on the securities beat.”

State securities regulators said older investors are being targeted with increasingly complex investment scams involving unregistered securities, promissory notes, charitable gift annuities, viatical settlements, and Ponzi schemes all promising inflated returns.

“Behind these schemes are opportunists who know that seniors and others living on fixed incomes are being squeezed in the current financial environment,” Bruenn said. “Their products and pitches sound tempting to many seniors who’ve seen their retirement accounts and income dwindle in recent years – and who may not have the benefit of time to recoup their losses.”

State regulators cited several examples of recent cases of investment fraud against seniors. For example:

  • In Maine, a broker admitted to stealing more than $230,000 from 12 clients, half of whom were seniors, by selling a variety of unregistered securities, promissory notes, mutual funds and stocks. Following an investigation by state securities regulators, most of the stolen funds have been returned and the broker is serving nearly 4 years in prison.
  • In Delaware a widow sold her house to purchase a promissory note offering 10- to 50-percent annual returns in response to an ad in a publication entitled “Better Years.” The unregistered investment turned out to be fraudulent and the 78-year-old woman now lives with her son and works as a convenience store clerk to make ends meet.
  • Arizona state securities regulators earlier this summer obtained a $4.3 million final judgment against a Scottsdale company and two insurance agents – both former professional baseball players – who fraudulently sold charitable gift annuities to mostly senior investors who were told their money would be invested in secure accounts. Instead it was placed in high-risk, speculative investments while the insurance agents helped themselves to $1.3 million in commissions.
  • Securities regulators in Massachusetts unearthed a training manual from the Senior Benefit Centers Network, which recruited and trained associates specifically to target older investors and coerce them into selling their securities holdings to purchase annuities. The scheme pursued seniors through free “Senior Financial Survival Workshops,” which authorities say were designed to persuade older investors to sell their securities holdings and buy annuities, which generate high commissions. Among other things, the manual instructed sales associates to urge clients not to tell their children of their purchases and to “make the decision for them.”

Bruenn urged seniors not to be ashamed or humiliated to admit that they have been victims of investment fraud. “Silence only helps the con artists lead another victim into the trap. Every day that financial fraud goes unreported is another day that criminals can steal retirement savings from unsuspecting seniors,” she said.

“No one likes this kind of publicity,” agreed Kenneth Reusser, 82, of Beaverton, Oregon. Among the victims of investment fraud at the news conference, Reusser said he is motivated to speak out to help others avoid putting their retirement security at risk.

“I want to alert other seniors to protect themselves and take control of their finances,” said Reusser, Oregon’s most highly decorated Marine aviator, and the veteran of 213 combat missions in three wars. Despite his five Purple Hearts, he says nothing wounded him as gravely as falling victim to a high-yield investment scheme he and his wife were introduced to by friends they met through a club called “Life After 50.” Today, Reusser’s loss totals $262,500 and his hand-built “dream home” is in foreclosure, having been mortgaged to fund his investment.

“Common sense tells you that if something sounds too good to be true it almost always is. But you don’t have to rely on common sense alone,” Bruenn said. “Contact your state securities regulator with any questions about an investment.” State regulators can, for example, report whether an investment product is licensed for sale in your state or whether a salesperson has a history of wrongdoing.

Karen Tyler, North Dakota Securities Commissioner and chair of NASAA’s Investor Education Section, said the target for those who prey on seniors grows larger every day. “Each day, more than 5,500 people turn 65 years old and nearly one out of every eight Americans is 65 years or older. That number will only grow higher as the Baby Boomers reach retirement age,” she said.

Noting that state securities regulators have a long tradition of protecting investors through education, Tyler announced that NASAA is launching a new investor education initiative designed to assist seniors. “Our mission is clear: to provide seniors with the educational resources they need to help keep their retirement nest eggs safe from investment fraud,” Tyler said.

NASAA’s new Senior Outreach initiative will monitor senior-related investment fraud issues and develop targeted educational responses; create a Seniors Against Investment Fraud program blueprint, based on a highly successful program developed by California securities regulators, for other states to tailor to their own audiences; survey existing senior programs and publications offered by state securities regulators and establish a clearinghouse for this information on the NASAA website.

Tyler also unveiled the initiative’s first project, the Senior Investor Resource Center on NASAA’s website. “The online Senior Investor Resource Center has been developed specifically for senior audiences and offers a variety of important information and resources,” she said.

The Senior Investor Resource Center offers: a checklist of questions seniors can ask before making an investment decision; common sense solutions to protect your nest egg from investment fraud; information about the top frauds targeting seniors; contact information for securities regulators in each state, the District of Columbia, Canada, Mexico and Puerto Rico; an Investors Bill of Rights and Investor Fraud awareness quiz and; links to a variety of investor education publications and programs offered by state securities regulators and others to help seniors fight investment fraud.

“It’s never too late to improve your financial education,” Tyler said. “I’m confident that our Senior Outreach initiative and the Senior Investor Resource Center will make great progress toward our goal of helping senior investors take control and protect themselves from investment fraud by providing the tools they need to make sound financial decisions,” Tyler said.

“With thousands of Baby Boomers reaching retirement age every day, more and more investors will find themselves in a precarious position regarding their retirement income security,” said Mary Wallace, a senior legislative representative with AARP’s Department of State Affairs. “NASAA’s senior outreach initiative will be invaluable in the fight against investment scams and will help older people protect their retirement income against financial predators. We look forward to working with NASAA on this very worthwhile effort.”

State securities regulators offered the following tips to help seniors protect themselves from investment fraud.

  • Don’t be a courtesy victim. Con artists will not hesitate to exploit your good manners. Save your good manners for friends and family members, not strangers looking for a quick buck!
  • Check out strangers touting strange deals. Trusting strangers is a mistake everyone makes when it comes to their personal finances. Extensive background information on investment salespeople and firms is available from the Central Registration Depository (CRD) files available from your state securities agency.
  • Always stay in charge of your money. Beware of anyone who suggests putting your money into something you don’t understand or who urges that you leave everything in his or her hands.
  • Don’t judge a book by its cover. Successful con artists sound and look extremely professional and have the ability to make even the flimsiest investment deal sound as safe and sound as putting money in the bank. The sound of a voice, particularly on the phone, has no bearing on the soundness of an investment opportunity.
  • Watch out for salespeople who prey on your fears. Con artists know that you worry about outliving your savings. Fear can cloud your good judgment. An investment that is right for you will make sense because you understand it and feel comfortable with the risk involved.
  •  Don’t make a tragedy worse with rash financial decisions. The death or hospitalization of a spouse has many sad consequences – financial fraud shouldn’t be one of them. If you find yourself suddenly in charge of your own finances, get the facts before you make any decisions. Arm yourself with information and your confidence will send con men running.
  • Monitor your investments and ask tough questions. Don’t compound the mistake of trusting an unscrupulous investment professional or outright con artist by failing to keep an eye on the progress of your investment. Insist on regular written and oral reports. Look for signs of excessive or unauthorized trading of your funds. And if you are stalled when you want to pull out your principal or profits from an investment, you have uncovered someone who wants to cheat you.
  • Don’t let embarrassment or fear keep you from reporting investment fraud or abuse. Con artists know that you might hesitate to report that you have been victimized in financial schemes out of embarrassment or fear. Con artists prey on your sensitivities and, in fact, count on these fears preventing or delaying the point at which authorities are notified of a scam. Every day that you delay reporting fraud is one more day that the con artist is spending your money and finding new victims.

For More Information:
Bob Webster, Director of Communications
202-737-0900

2003 Headlines, Newsroom, Senior News & Alerts