States, SEC Work to Protect Elderly Investors

In preparation for the biggest retirement boom in history, states are joining with the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) to protect seniors from predatory sales tactics and investment fraud.

At the same time, several states are stepping up efforts to educate seniors about dangers of investing without investigating .

The high-powered attack is needed because baby boomers will retire at unprecedented rates over the next 20 years. Their enormous investment capital- an estimated $15.5 trillion during the period -is expected to attract scam artists, many of whom already prey on elderly people across the country, state and federal regulators say.

“Overall, as the senior population has increased there’s been an increase in securities fraud against seniors,” said Bob Webster, a spokesman for the North American Securities Administrators Association (NASAA), which represents state securities regulators. “As our population ages, it’s only logical that con artists are going to go where the money is.”

In a test case of the joint approach, regulators in Florida are working with the SEC and NASD to investigate “free lunch” seminars, where seniors can be pressured to invest in scams. California’s Seniors Against Investment Fraud, an education program, has been adopted by Florida, Iowa and Pennsylvania and is being touted as a model in other states.

The first of the baby boomers, the generation of Americans born between 1946 and 1964, turn 60 this year, and no fewer than 75 million Americans are due to turn 60 during the next 20 years, more than 10,000 every day.

Nearly one-third of all U.S. investors are between age 50 and 64, and about 5 million senior citizens are victims of financial abuse each year, SEC figures show.

Boomers have more than $8.5 trillion in assets available for investment, and during the next 40 years will inherit at least $7 trillion from their parents, Patricia Struck, NASAA president and administrator of the Wisconsin Securities Division, said in U.S. Senate testimony on March 29, 2006.

As a group, seniors have saved a lot of money and generally have equity in their homes, making them a target for investment fraud, Andrew Roth, director of education and outreach at the California Department of Corporations, told Stateline.org . Unlike younger investors, seniors have little room for financial recovery after becoming victims of fraud, AARP Florida State Director Bentley Lipscomb said.

In Florida, state and federal regulators have conducted onsite examinations of “free lunch” seminars to determine if presenters are appropriately supervised and if their sales tactics are legal. These seminars, at hotels and restaurants, typically draw large crowds, including many seniors, who are often given the “hard sell” to persuade them to purchase risky or inappropriate financial products, Don Saxon, the commissioner of Florida’s Office of Financial Regulation, said.

“There’s nothing to say that offering a free lunch is wrong, provided security laws are being followed and the investments being recommended are suitable for the investor, and risks are disclosed,” Saxon said.

Saxon said once regulators have completed their reviews, the groups will come together again to decide their next step.

SEC Chairman Christopher Cox said in U.S. Senate testimony on May 23, 2006 the scrutiny of “free lunch” come-ons will focus on educating senior investors as well as “extensive information sharing among securities regulators.”

Webster said officials have not yet determined which other states will participate in the program.

State regulators also are being encouraged to support or create programs like California’s Seniors Against Investment Fraud (SAIF). SAIF is an outreach program that provides information on recognizing and preventing investment scams of Californians over the age of 50.

Established in 2001, SAIF contracts with nonprofit organizations throughout the state, Roth said. Last year, SAIF staged more than 450 presentations, reaching more than 50,000 seniors.

Aside from offering investor education seminars, many organizations, including the SEC, NASAA and AARP, maintain Web sites with resources to help senior investors spot and avoid fraud.