NASAA Statement at SEC Seniors Summit

Patricia D. Struck
Wisconsin Securities Administrator and
President North American Securities Administrators Association

Seniors Summit Statement

July 17, 2006

Thank you Chairman Cox. I am honored to have the opportunity to participate in the Seniors Summit to highlight the activities of state securities regulators in protecting senior citizens from investment fraud.

From the “Greatest Generation” to the “Baby Boomers,” seniors have worked hard to build both our nation’s economic prosperity and a lifetime’s worth of savings. As regulators, we must do all we can to ensure that their golden years are not tarnished by investment fraud.

Individuals age 60 and older make up 15 percent of the U.S. population but account for about 30 percent of fraud victims.

Con artists have emerged from the side streets and back alleys to Main Street where older investors live. They know that today’s retirees are facing greater responsibility for their financial security because of the decline of traditional defined benefit pension plans, and they need to maximize their retirement investments.

That’s one reason seniors today are flooded with pitches for investment seminars; many of them promising a free meal along with “higher returns and little or no risk.”

Unfortunately, in many of the cases that securities regulators see, it’s just the opposite: high risk and no returns, just disastrous losses.

The bait for many of these seminars is that “income” will be “guaranteed” and substantially higher than the returns someone on a fixed income can expect to get from certificates of deposit, money market investments or other traditional financial products.

The current landscape facing senior investors is littered with slick schemes and broken dreams. While our cases of senior investment fraud may not make national headlines, they are devastating in their impact on victims and their families.

 

  • In my own state of Wisconsin, an elder in a Kenosha church operated a long-running Ponzi scheme that victimized 117 friends, relatives, and mostly senior parishioners of more than $6 million.
  • In Florida, state officials recently dismantled Orlando-based Tropical Village, Inc., that they say defrauded elderly investors of more than $9 million through the sale of unregistered securities.

With the first ‘Baby Boomers’ turning 60 this year, state securities regulators are deeply concerned that investment fraud among seniors, already nearly half of all investor complaints we receive, could grow significantly.

Preliminary results of a new NASAA survey, measuring senior investment fraud, show that 45 percent of all investor complaints received by state securities regulators come from seniors.

In addition, the survey found that one-third of enforcement actions taken by state securities regulators involve senior investment fraud. Of course, the threats facing senior investors are more pronounced in states with large retirement populations. In Florida, around 75 percent of all investor complaints are made by seniors.

The NASAA survey also found that unregistered securities, variable annuities and equity-indexed annuities are the most pervasive financial product involved in senior investment fraud. In California, 75 percent of the state’s senior investment fraud cases involve unregistered securities.

Cases involving variable or equity-indexed annuities were 65 percent of the caseload in Massachusetts, 60 percent of the caseload in Hawaii and Mississippi.

Con artists use the promise of high commissions to lure brokers, insurance agents, investment advisers, accountants, and lawyers, some of them not licensed to sell securities, into offering investments they may know little about, such as variable or equity-indexed annuities, bogus limited partnerships or promissory notes.

Some of these individuals hold nothing more than a “designation” as “senior specialists” implying that they have expertise in assisting seniors in structuring their investments in such a manner as to reduce taxes, minimize risk and avoid state probate laws.
State regulators are concerned these individuals are misusing “senior specialist” designations to provide a false sense of security to their customers.

While there are organizations whose members complete rigorous programs of study and pass extensive examinations to earn “senior specialist” designations, there are other organizations that require little or no training to use one of these designations.

For this reason, senior investors should make sure they deal only with individuals, licensed by state securities regulator. We license brokers and investment advisers after they pass rigorous competency examinations.

While my colleagues and I currently see a proliferation of troubling schemes involving unlicensed individuals promoting and selling unregistered securities to seniors, we continue to be concerned about the way in which variable and equity-indexed annuities are marketed and sold to seniors.
Let me be clear. Our concerns with variable and equity index annuities are not about the products.

These annuities are legitimate and suitable investments for some, but they are unsuitable for many retirees, and yet they are being pitched aggressively to seniors through investment seminars.

We are concerned that investors aren’t always told about high surrender charges for early withdrawals, the potential of exposure to market risk, and the steep sales commissions agents often earn when they move investors into these products.

Conclusion
NASAA’s survey results that I’ve shared this morning show that senior investment fraud is a serious ongoing problem.

State securities regulators believe the most effective weapon against senior investment fraud is targeted, aggressive enforcement combined with financial education to protect investors from unscrupulous individuals.

For that reason, we are pleased to be working with the SEC and the NASD to help protect our nation’s seniors. The senior initiative discussed earlier by Chairman Cox reflects the long-standing collaborative relationship between state and federal securities regulators and we believe it will lead to significant protections for senior investors.

Today’s senior investors are our parents, our teachers, our church leaders and our coaches – the same people we looked up to in our childhoods. They deserve the same respect today. We will not tolerate their victimization by those who would profit from their lifetime’s savings.

July 17, 2006

Issues & Advocacy, Legislative Activity, Testimony