Tricks of the Trade: Outsmarting Investment Fraudsters

Investment fraud is big business – and senior investors are unfortunately prime targets.

Scammers often single out seniors for their scams and schemes, luring them with offers of risk-free or guaranteed high yield investments. According to the Better Business Bureau, some of these con artists contact investors with so-called investment opportunities that promise an unrealistically high price for a stock or other investment that the investor owns. To ensure the sale, the investor is asked to pay a large advance sum of money as a deposit or transaction fee. It’s a scam – the purchase does not happen, and the investor loses the advance fee.

Other common financial scams that target senior investors may involve promissory notes, which are investments that provide above-market, fixed returns. While some promissory notes are, in fact, legitimate investments, others are fraudulent and worthless. (A prime example of a scam involving fraudulent promissory notes is Medical Capital Holdings. In 2009, Medical Capital was charged by the Securities and Exchange Commission (SEC) with fraud. The company collapsed shortly thereafter, and investors lost about half of the $2.2 billion in notes that Medical Capital issued from 2003 to 2009.) 

The bottom line: Watch out for promissory note investments that promise unrealistically high returns, says the BBB.

Another popular “senior” scam involves IRA or IRS-approved investments. The promoters of this type of investment scam typically tell investors that they can roll over their IRA investment into a more profitable investment. Oftentimes, this investment is in a fancy-sounding industry. Scammers may claim that their plan has the approval of the IRS or another government agency. In reality, this is a clear sign of fraud, and investors young and old alike are well advised to avoid such investment offers, the BBB says.

One of the most common scams targeting senior investors employs the free meal seminar. Here’s how it works: Investors are invited to receive a free meal and learn about certain investment opportunities. While free meal seminars may be a legitimate method in which to obtain new clients, some seminar salespeople may try to sell unsuitable investments to attendees or convince investors to replace their existing investments. They may also fail to disclose their fees or commissions, making it difficult to accurately compare products and services. Others may use these seminars simply to obtain your personal and financial information.

Finally, many financial scammers are able to carry on their ruse by creating the impression that they have special education or expertise in senior/retirement services. The North American Securities Administrators Association says that if the credentials contain words such as “senior” or “retirement” in conjunction with the words “certified” or “registered,” investors should be cautious. These credentials may be no more than a commercial gimmick. Their specialty may be more about knowing how to “sell” to seniors, and less about what may actually be in their clients’ best interests, NASAA says.