Courtesy of Florence Klein, Founder, SilverPlanet.com

It has become a sadly familiar story: the elderly being conned by investment brokers. According to the National Law Journal, securities fraud attorneys say seniors are increasingly filing complaints against their brokers for conning them into bad investments. And according to a 2009 report issued by MetLife Mature Market Institute, Broken Trust: Elders, Family, and Finances, financial abuse costs older Americans more than $2.6 billion per year. While most of the abuse is committed by family members, financial losses are higher with investment scams, often perpetrated by outsiders, according to the Journal.

At the October 2009 Solutions Forum on Fraud in Washington, D.C., U.S. Securities and Exchange Commission Chairman Mary L. Schapiro said that the SEC has brought nearly 70 enforcement actions during the past three years against fraudsters targeting elderly investors. A look at press releases posted at the SEC and the Financial Industry Regulatory Authority’s (FINRA) Web sites give more than a few examples of why you can’t relax your guard. Here are some of them:

1. A FINRA claim was filed October 26, 2009, by an 82-year-old Florida man and his 75-year-old wife who said their Bank of America broker befriended them—sometimes visiting four times a week—gained their trust, and convinced them to buy high-risk investments in companies that had little or no previous operating history. It cost the couple $1.425 million. The couple is also seeking to hold liable the broker’s employer—Banc of America Investment Services, a subsidiary of Bank of America—saying it “should have detected and prevented the broker’s recommendations to invest in unregistered securities that were illiquid, had no recognizable market value, and overexposed the seniors to risk,” according to the Journal.
2. On October 22, the SEC charged a New York–based real estate funds promoter and the former president of a broker-dealer firm with orchestrating a multimillion-dollar real estate investment scheme and also charged two brokers at the firm with selling unregistered securities via “free lunch” seminars they used to coax elderly investors into making the risky investments. According to the SEC’s complaint, the investment scheme collected nearly $12 million from 90 investors, while the promoter made numerous misrepresentations, including that the return was more than 50% on the sale of some properties in which they were investing. The SEC also alleged that the promoter misappropriated more than $1 million of investor funds by charging excessive management fees and taking out an interest-free personal loan to purchase his own home.
3. On October 8, FINRA barred a former New York broker from the securities industry for allegedly defrauding a 90-year-old Minnesota man of $511,000. The broker knew that the company he had recommended had little or no revenues at the time. In order to cover up his activities, he sold the securities to the customer without the knowledge of the two brokerage firms with which he was then registered.
4. In September, the SEC filed a suit against a Michigan man, charging that he lured elderly investors into refinancing their homes to fund investments in a phantom company. His “investor seminars” persuaded 800 people—mainly senior citizens and retirees—“to invest more than $70 million in the company, but the victims’ money was actually being piped into a Ponzi scheme,” Schapiro said.
5. Also in September, FINRA barred a former registered representative with Morgan Stanley DW, Inc., for misappropriating $11,156 from the charitable foundation of a 97-year old widow who was his client for more that 20 years. The panel sanctioned the representative’s wife, also a former registered representative with Morgan Stanley, for borrowing $100,000 from the same client without the approval of her brokerage firm. The broker began misusing the widow’s money after she became ill, using it to pay for a vacation, clothing bills, and expensive wine.

In the past three years, the SEC has brought nearly 70 cases targeting senior citizens.

“Many of these cases involve supposedly profitable and secure investment programs that are really nothing more than Ponzi schemes,” Schapiro said in her speech. “We also have filed cases against investment advisers who promise security for retirees, but deliver only risk and catastrophic losses.”

Investors can get the disciplinary record as well as other information about any FINRA-registered broker or brokerage firm by using FINRA’s free BrokerCheck service, or by calling (800) 289-9999. In 2008, members of the public used this service to conduct 11.6 million reviews of broker or firm records.

In October, the SEC launched Investor.gov, its first-ever Web site devoted to investor education, providing in-depth information and tips on how to invest wisely, plan for the future, and avoid being scammed. It also has a detailed Seniors Care Package section for senior citizens and caretakers.