Unregistered Securities, Variable and Equity Indexed Annuities Most Pervasive Financial Products Involved in Senior Investment Fraud

WASHINGTON (July 17, 2006)—With the first ‘Baby Boomers’ turning 60 this year, state securities regulators warned today that investment fraud among seniors, which already accounts for nearly half of all investor complaints received by state securities regulators, could grow significantly in coming years.

“From the ‘Greatest Generation’ to the ‘Baby Boomers,’ seniors have worked hard to build both our nation’s economic prosperity and 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,” said Patricia D. Struck, Wisconsin Securities Administrator and President of the North American Securities Administrators Association (NASAA).

Struck’s remarks came during the Seniors Summit hosted by the U.S. Securities and Exchange Commission to coordinate efforts to protect older investors from financial fraud. In May, NASAA and the SEC announced a major initiative, in conjunction with the NASD, to protect seniors from investment fraud and the sale of unsuitable products.

Struck also announced preliminary results of a new NASAA survey designed to determine the scope of senior investment fraud. “The current landscape facing senior investors is littered with slick schemes and broken dreams,” Struck said. “While our cases of senior investment fraud may not make national headlines, they are devastating in their impact to the victims and their families.”

The survey of state securities regulators shows that an estimated 44 percent of all investor complaints received by state securities regulators are made by seniors. In addition, the survey found that about one-third, or 31 percent, of all enforcement actions taken by state securities regulators involve senior investment fraud.

In Florida, for example, an estimated 75 percent of all investor complaints are made by seniors. The survey also shows that in North Carolina an estimated 50 percent of all enforcement actions involve cases of senior investment fraud.

“These early results show that senior investment fraud is a serious ongoing problem and we fear that it will only grow without targeted enforcement and enhanced investor education,” Struck said. “We will not tolerate the victimization of senior investors by con artists. The most effective weapon against senior investment fraud is a one-two punch of aggressive enforcement efforts combined with financial education to protect investors from unscrupulous individuals.”
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The NASAA survey also found that unregistered securities, variable annuities, and equity-indexed annuities are the most pervasive financial products involved in senior investment fraud.

For example, in Tennessee, an estimated 80 percent of the state’s senior investment fraud cases involve unregistered securities; while California and Maryland estimated these cases make up 75 percent of its senior investment fraud caseload. Cases involving variable or equity-indexed annuities represented an estimated 65 percent of the caseload in Massachusetts, and 60 percent of the caseload in Hawaii and Mississippi.

“While my colleagues and I currently see a proliferation of troubling schemes involving unlicensed individuals promoting and selling unregistered securities to seniors, we are also concerned about the way in which variable and equity-indexed annuities are marketed and sold to seniors,” Struck said. “Variable and equity-indexed annuities are legitimate and suitable investments for some, but we believe these products are unsuitable for many retirees and are being aggressively pitched to seniors through investment seminars nationwide.”

Struck said the survey’s preliminary findings are based on responses from 34 of NASAA’s 67 member jurisdictions in the United States, Canada, and Mexico.

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, Puerto Rico, the U.S. Virgin Islands, the provinces and territories of Canada, and Mexico.

Full Text of Patricia Struck’s Seniors Summit Remarks

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