State Securities Regulators Outline Initiatives to Protect Seniors from Investment Fraud

WASHINGTON, D.C. (March 29, 2006) — The North American Securities Administrators Association (NASAA) today identified three troubling trends endangering the retirement nest eggs of our nation’s growing senior population and outlined the steps state securities regulators are taking to protect senior investors from fraud.

“My colleagues and I are currently seeing a proliferation of noteworthy schemes in three related areas: ‘senior specialists,’ variable annuities, and unlicensed individuals selling unregistered securities to seniors. Unfortunately, these three problems often occur simultaneously at certain senior investment seminars,” said Patricia D. Struck, NASAA President and Wisconsin Securities Administrator.

Struck’s remarks came in testimony before the Senate Special Committee on Aging in a hearing on senior investment fraud. Noting that the first of an estimated 77 million baby boomers (those Americans born from 1946 to 1964) celebrated their 60th birthday this year, Struck said state securities regulators are concerned that financial scams targeting seniors will rise.

NASAA members are receiving an increasing number of complaints from investors who have been enticed into attending seminars sponsored by certain “senior specialists” commonly through the promise of a free meal. “Typically, the specialist recommends liquidating securities positions and using the proceeds to purchase fixed, indexed or variable annuities products the specialist offers,” Struck said, noting that anyone who provides investment advice for compensation must be properly licensed with state securities regulators.

Struck also noted that seniors continue to be sold variable annuities, which, although a legitimate and suitable investment for some investors, are in many cases unsuitable for seniors because of 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 this product. She told the panel that NASAA is encouraging changes in state laws that would allow state insurance regulators to continue to oversee the insurance companies that sell variable annuities while authorizing state securities regulators to investigate complaints about variable annuities and to take action against the individuals who sell them.

The third threat facing seniors comes from unlicensed securities sellers pitching securities that are unregistered. Individuals who sell securities or provide investment advice are required to earn a license by passing rigorous examinations before they can offer their services to the public. “Those who bypass this requirement often are predators offering bogus investments,” she said.

Struck outlined several cases of senior investment fraud handled by NASAA members, including one case in Wisconsin in which an elder in a Kenosha church operated a long-running Ponzi scheme that victimized a total of 117 friends, relatives and parishioners (mostly seniors) of over $6 million. Two of the fraud victims committed suicide from being so financially devastated by the fraud, Struck said, noting that the case resulted in a conviction and a 10-year prison sentence. She said the case is illustrative of the dangers seniors face today as they seek to maximize their retirement investments amid declining traditional defined benefit pension plans and rising life expectancies.

“These are dangerous economic times for seniors,” Struck said. “Con artists read the headlines, and they need little encouragement to emerge from the side streets and back alleys to Main Street where older investors live.” As a result, seniors are bombarded with pitches for financial seminars through ads in newspapers, the radio and on the Internet. “Cold callers, brokers, financial planners, and insurance agents are all pitching investments to seniors,” Struck said. “Many of them are promising ‘higher returns and little or no risk.’  Those words are a red flag for investors. Unfortunately, in many of the cases that securities regulators see, it’s just the opposite:  high risk and no returns, just devastating losses.”

Struck told the panel that state securities regulators believe the most effective weapon against fraud is a dual approach: combine aggressive enforcement efforts with financial education to protect investors from unscrupulous individuals.

She also outlined a series of initiatives NASAA members have launched in recent years to actively promote investor awareness among seniors through a variety of venues, including the 2005 Summer National Senior Olympics and through the use of an investment fraud bingo game being used in Texas, Pennsylvania, Indiana and Florida. NASAA members also have developed a blueprint for states to develop effective senior outreach programs and in 2003, NASAA launched the Senior Investor Resource Center on its website to provide investor protection information to seniors.

Struck noted that NASAA’s May 9 Public Policy Forum, which traditionally focuses on the issues of greatest importance to regulators, the securities industry and the investing public, will be devoted this year to the challenges raised by the growth of the senior population.

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.

The complete text of Patricia Struck’s testimony.

For More Information:
Bob Webster
Director of Communications