subject: Investment Fraud: The Older You Are, The Warier You Must Be [print this page] Because they are more likely have a higher net worth and are more accessible to fraudsters than younger Americans, older investors are most vulnerable to investment fraud. A report by the Center for Retirement Research at Boston College also found "the ability to make effective financial decisions declines with age as dementia and other types of cognitive impairment increase."
Investment fraud is a growing menace. The Federal Trade Commission received 1.8 million complaints last year. Identity theft, which often involves older people, was the largest single category.
With the Internet providing more opportunities for deceptive investments, and the new federal JOBS act (for Jump-Start Our Business Start-Ups) possibly waiving some regulations for small businesses, opportunities for more fraud now exist. Further fueling such fraud is that many retirees have inherited money from their parents. The demographic bulge of baby boomers now claiming their retirement years threatens to make fraud a growing problem in the years ahead. Steering clear of fraudulent enticements is not getting easier!
The JOBS law allows people to pool money for a business, with fewer restrictions for small businesses going public, enabling them to directly offer shares to the public with less oversight by the Securities and Exchange Commission. This raises the concern that retirees looking to increase their investment income will become targets of fraudsters offering investments in start-ups billed as the next Google.
Lou Straney, who instructs certified fraud examiners, called such a situation "incredibly dangerous. Fraudsters will seize on this on this and try to sell promissory notes based on growth from fictitious companies." He said such promissory notes have recently become a dominant fraud tactic. Retirees are offered a promissory note tied to anything from a commodity to a life insurance settlement. Once the deceptive agents get a few million dollars from investors, they stop selling the notes and disappear.
With many investment vehicles like bonds returning low yields, opportunities to get a higher return clearly get the ear of investors. Along with outright fraud, the search for a higher yield can put investors into high-fee products that earn brokers a two to 10 percent commission.
News headlines also create fraud opportunities. When the price of a particular commodity shoots up, fraud agents pounce. Top investor traps include energy, gold and other precious metals, including special coins, dormant mines, and new extracting equipment. Some energy investments deceptively promise a share of profits from untapped oil and gas reserves.
Recessionary times also bring out swindlers. Real estate schemes have flourished following the housing downturn. Foreclosed properties are sold as investment pools and connected to promissory notes. In one Florida case, $2.3 million was gained from investors to buy, refurbish and resell properties. The swindler was caught and pleaded guilty to fraud.
The Investor Protection Trust urges families to hire professionals to monitor and intervene when financial fraud is suspected. Intervention needs to involve regular conversations with retired family members and friends, asking about investment solicitations and what kind of offers retirees are getting. Especially if retirees have been asked for social security numbers or bank account information, alarms need t sound! Outright identity theft can be used to drain bank accounts and steal tax refunds among other things.
It is also a not a bad idea to ask legal and health care professionals serving older investors to stay alert for possible signs of fraud and report their suspicions. Often times retirees like to talk about a superior investment they are involved in that sounds to good to be true.
Of course, if any out-of-the-ordinary return is received, an independent third party, such as a CPA, a chartered financial analyst, or fee-only certified financial planner, should examine it. Many financial advisers are also fiduciaries, which mean they are required to put your interests above their own or anyone else.
Also, by all means, ask questions! Asking questions like "How are such big returns produced?" or "Can I see the audited financial statements of the company making the offering?" can stop operators in their tracks. While any statement or document can be falsified, if the sellers evade many questions, that is a good sign that they are not legitimate.
Broker and adviser backgrounds can also be checked. State securities regulators will tell you if broker or advisers are registered and what is in their background files, such as lawsuits and criminal charges.
As we said, the number of fraudsters is huge and growing -- and they greatly outnumber the regulators trying to keep up with them. It is up to investors and their families to diligently investigate any offer and root out what is fraudulent. With such diligence, many scams can be avoided.
