Borg: “States have been in the vanguard developing innovative regulatory responses to fight senior investment fraud.”

WASHINGTON, D.C. (September 5, 2007)—The North American Securities Administrators Association (NASAA) today told a Congressional panel that senior investors are being targeted through “free lunch” investment seminars by predators holding professional-sounding designations that can be nothing more than empty marketing tools.

“State securities regulators share your outrage at the practices used to swindle seniors out of the hard-earned money they need for a secure retirement,” NASAA President and Alabama Securities Commission Director Joseph P. Borg told Senator Herb Kohl (D-WI), chairman of the U.S. Senate Special Committee on Aging during a hearing entitled, “Advising Seniors About Their Money: Who Is Qualified – and Who Is Not?”

“The financial victimization of seniors is simply intolerable, and the entire community of state securities regulators will continue to play an active role in protecting seniors through enforcement, education, and regulation,” Borg said.

Since NASAA first identified the risk seniors face at free meal investment seminars in 2003, state securities regulators have been actively investigating and bringing cases to stop the spread of abusive sales practices that often emanate from these events.

“Our members are seeing a variety of violations associated with many of these events, ranging from outright lies and the conversion of investor funds to more sophisticated forms of abuse,” Borg said. “From steakhouses in Sun City, Arizona, to country clubs in Fredericksburg, Virginia, the retirement savings of seniors, as well as those nearing retirement, are being targeted by well-trained salesmen who, in too many cases, put their own personal interests ahead of those of their clients.”

Borg said that state securities regulators also see another disturbing trend in the area of senior abuse. “Increasingly, licensed securities professionals, insurance agents, and unregistered individuals are using impressive-sounding but sometimes highly misleading titles and professional designations,” he said. “Many of these designations imply that whoever bears the title has a special expertise in addressing the financial needs of seniors.”

While some of these designations reflect bona fide credentials in the field of advising seniors, many do not, Borg noted. “These titles can serve as an easy way for an unscrupulous sales agent or adviser to gain a senior’s trust, which is the first step in a successful fraud,” Borg said. “Often these designations are used in conjunction with ‘free lunch’ seminars and are highlighted in mass mailings, business cards, and other promotional materials.”

Borg told the committee that it is “exceedingly difficult” for prospective investors – particularly senior citizens – to determine whether a particular designation represents a meaningful credential by the agent or simply an empty marketing device. “The use of such professional designations by anyone who does not actually possess special training or expertise is likely to deceive investors,” he said.

A survey earlier this year of the NASAA membership found that nearly half of the respondents had taken an enforcement action against individuals who had used a senior designation in a deceptive manner, and other members were investigating such allegations. NASAA and its members also are responding to the problem of senior designations with regulatory solutions. “The states have been in the vanguard developing innovative regulatory responses to fight senior investment fraud,” Borg said, noting a recent rule adopted in Massachusetts limiting the use of professional designations that state or imply a special expertise in senior financial affairs and money management.

“I want to commend Massachusetts Secretary of the Commonwealth Bill Galvin for his leadership in addressing the problem not only through effective enforcement but also through innovative rulemaking,” Borg said, noting that Nebraska has issued a special notice addressing the use of designations and Washington State is soliciting comments on possible rule amendments aimed at the use of professional designations relating to senior citizens.

A NASAA task force is developing a model rule that would be suitable for adoption by each NASAA member confronting the misuse of senior designations. “The model currently under consideration would attack the problem by making it a separate violation of law to use a designation or certification to mislead investors,” Borg said.

Borg also called upon Congress to explore proposals to assist law enforcement and prosecutors to ensure that those who take advantage of our nation’s elderly will be held accountable. “Fraudulent investment sales to seniors will remain a problem of epidemic proportions as long as the benefits to the perpetrators outweigh the costs,” Borg said. “Enhanced penalties for senior abuse – ranging from fines to jail terms – should help to raise those costs, deter law violations and punish appropriately those who exploit senior investors.”

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Canada, Mexico, Puerto Rico and the U.S. Virgin Islands.

NOTE: The complete text of Mr. Borg’s testimony is available here.

For more information:
Bob Webster, Director of Communications