Authorities target senior fraud

0 Comments | Deseret News (Salt Lake City), Aug 27, 2006 | by Jenifer K. Nii Deseret Morning News

It started with a phone call, or that's how Reuvo Bagley remembers it.

On the other end: a "very nice" woman selling an insurance policy that Bagley said sounded too good to be true, though she can't quite recall what made that policy different or better than any other.

"I trusted the saleswoman, is I guess what it was," Bagley said. "She was a very nice person."

It wasn't until later, after a dinner meeting with investment adviser Kelly F. Bills, that she began to wonder. And not even then, really.

"The policy took me $2,000 to get it, and then they were taking out the yearly payment out of the principal," said Bagley, who is in her 80s. "I didn't know how it worked."

Here's how it "worked," according to Bills, who spent about a year working on Bagley's behalf as part of his affiliation with The St. Jude Project, a Utah-based volunteer group he founded to retrieve money for seniors who've been victimized by investment or other financial companies:

The Bagleys were advised by an investment adviser from their bank, who advocated using their life savings to buy an insurance policy that ostensibly would provide tax-free income for their retirement while at the same time adding to the estate they left to their children. In reality, Bills said, the policy was grossly overpriced and did not provide an income payment of any kind.

"What I remember is that they made it sound like it was the only way to go," Bagley said. "It was kind of over my head. She (the woman who sold Bagley the policy) was a really nice lady, and that's why I was hesitant to try to get the money back. I didn't want to hurt her. But then I realized it just wasn't a very good deal."

In the end, Bagley said, Bills retrieved the entire amount of her investment in the policy -- about $60,000, as she recalls, plus interest. But others aren't so lucky. And, according to a passel of studies recently released by senior-focused organizations, as the baby boomer generation reaches retirement and beyond, seniors are, and will be, prime targets for fraudsters.

A new survey from the North American Securities Administrators Association found that an estimated 44 percent of all investor complaints to state securities regulators are by seniors. About a third of all enforcement actions taken by state securities regulators involve senior investment fraud, the NASAA reported.

"Individuals age 60 and older make up 15 percent of the U.S. population but account for about 30 percent of fraud victims," NASAA president Patricia D. Struck said at the first-ever "Seniors Summit," hosted by the U.S. Securities and Exchange Commission last month.

Utah isn't seeing higher- or faster-growing rates of victimization among senior investors than other states, said Francine Giani, executive director of the Utah Department of Commerce. But, she added, "based on reports I've read and investigations I've been a part of, clearly seniors are our most vulnerable population."

So much so that SEC spokesman John Nestor said the agency is getting the word out that protection of seniors is a top priority. In his keynote address at the July summit, SEC Chairman Christopher Cox said the nexus of a huge number of people turning older with greater life expectancy and fewer guarantees of financial security has "the makings of a perfect storm."

"Fraudsters will go after seniors because, following the Willie Sutton principle, 'that's where the money is.' And seniors won't be the conservative investors they used to be -- so they'll be more vulnerable than ever," Cox said. "The result could be an avalanche of investment fraud cases that could injure millions of seniors who are vulnerable, not just because of the onset of years, but more importantly because, once they lose their savings, they'll have no second chance."

Put another way:

"Older people are not more gullible, and they're not greedier," said Nestor. "Older people are easier to find, because they're at home more, and they're more likely to have assets they can be separated from. I mean, there's not much use trying to scam an 18- year-old out of their life savings. There's nothing to scam."

And another:

"Con artists have emerged from the side streets and back alleys to Main Street where older investors live," said NASAA's Struck. "They know that today's retirees are facing greater responsibility for their financial security because of the decline of traditional benefit pension plans, and they need to maximize their retirement investments."

The most common financial products involved in senior investment fraud are unregistered securities, variable annuities and equity- indexed annuities, the NASAA survey found.

So, what are the answers?

Nestor said the SEC will step up its inspections of securities broker/dealers, particularly those that do a lot of business with seniors, and those who sell products -- like so-called "fixed income" or "guaranteed income" products -- primarily aimed at older people.

The agency also plans to get the word out, loud.

"We want older folks to know the tactics that the bad guys use, and also where they can go to learn to protect themselves," Nestor said. "We want them to know how to check a broker's credentials. We want them to know how to check with the state to make sure there haven't been any complaints (against a particular broker)."