Category Archives: Elder Abuse

With Grandparents Day approaching this Sunday, the Better Business Bureau is warning seniors to be on the lookout for a fraud scheme commonly referred to as the “Grandparent Scam.”

The scam typically works as follows: A grandparent receives a phone call late at night from the scam artist who claims to be one of his or her grandchildren. The phony grandchild is in a panic, saying that it’s an emergency situation and he/she needs money immediately. The sense of urgency that the scam artist creates makes the concerned grandparents act quickly – and all too often without verifying who is actually calling.

Recent research from the Consumer Sentinel Network shows a steady increase in impostor scam reports over the past several years, from just above 60,000 in 2010 to close to 83,000 in 2012.  The Grandparent Scam is one of the most common types of impostor scams targeting senior citizens.

And while the Grandparent Scam has been around for years, it has become more sophisticated thanks to the advent of social media. Now, scam artists have the Internet and other Web tools and programs at their disposal not only to more easily uncover personal information about their targets but also to make their impersonations that more believable.

Another common fake scenario associated with the Grandparent Scam includes the scam artist getting the grandparent to wire or send money on the pretext that the victim’s child or another relative is in the hospital and needs the money. Sometimes the scam artist might call and pretend to be an arresting police officer, a lawyer, or a doctor at a hospital. The phony grandchild may talk first and then hand the phone over to an accomplice of the impersonator to add further “credibility” to the scam.

The BBB offers the following tips to avoid becoming a victim of the Grandparent Scam:

Be skeptical. Without revealing too much personal information yourself, ask questions that only the grandchild could know the answer to. Examples include the name of a favorite pet, a favorite dish or what school they attended. Your loved one should not get angry about you being too cautious.

Verify information. Check with the parents to see if their child is really travelling as they say they are.

Don’t wire money. Never use a transfer service to send money to someone you haven’t met in person or for an emergency you haven’t verified is real.

If you or a loved one becomes a victim to an imposter scam, report the incident immediately to local police and your state Attorney General’s office.

Sales involving alternative investment products sold to elderly investors has an unleashed an investigation by Massachusetts securities regulators into 15 brokerage firms. The firms include LPL Financial LLC, Morgan Stanley, Merrill Lynch, UBS Securities LLC, Fidelity Brokerage Services LLC, Charles Schwab & Co. Inc., Wells Fargo Advisors, TD Ameritrade Inc., ING Financial Partners Inc.,  Commonwealth Financial Network, MML Investor Services LLC, Investors Capital Corp., Signator Investors Inc., Meyers Associates LP, and WFG Investments Inc.

As reported yesterday, the Massachusetts securities division has sent subpoenas to the firms being targeted, asking for information on sales of the products to state residents who are 65 or over.  Among the non-traditional investments included on the list:  Oil and gas partnerships, private placements, structured products, hedge funds and tenant-in-common offerings.

Massachusetts is demanding information on any such products that have been sold over the past year, the investors who purchased them, the commissions generated, how the sales were reviewed, and all relevant compliance, training and marketing materials used for marketing and sales purposes.

The firms have until July 24 to respond.

This isn’t the first time that Massachusetts has come down hard on broker/dealers for alleged improper sales of certain alternative investments. In May, the state settled cases involving non-traded REITs with Ameriprise Financial Services; Commonwealth Financial Network; Lincoln Financial Advisors Corp., Royal Alliance Associates; and Securities America. The five firms agreed to pay a total of $6.1 million in restitution to investors, as well as fines totaling $975,000.

In February, Massachusetts reached a similar settlement with LPL Financial, which agreed to pay at least $2 million in restitution and $500,000 in fines related to sales of non-traded REIT investments.

The REIT investigations “heightened my concern that the senior marketplace is being targeted for the sales of these high-risk, esoteric products,” said Massachusetts Secretary of the Commonwealth William F. Galvin in a statement yesterday.

“While these products are not unsuitable in and of themselves, they are accidents waiting to happen when they are sold to inexperienced investors by untrained agents who push the products to score … large commissions.”

A May 7 story by NPR highlights some of the ways in which bogus financial advisers use the “art of confusion” to siphon money from unsuspecting elder Americans. A contributing factor to this type of elder fraud is the myriad of senior designations that exist in the financial industry and the fact that it’s almost impossible to discern if an adviser’s designation actually translates into proper training and education to advise seniors about their investments.

NPR guest Stacy Canan, deputy assistant director at the Office for Older Americans, cites a recent study conducted by the Consumer Financial Protection Bureau on senior designations. The report found that more than 50 different senior designations currently are used today, with senior designees recommending or selling everything from securities, to investment opportunities, to financial products and annuities and long-term care insurance.

Meanwhile, consumers are more confused than ever by the array of designations and have no simple way to determine if the designations themselves required rigorous college-level coursework or simply showing up at a weekend seminar.

“Seniors in particular often mistakenly believe that their financial adviser is looking out for their best interest. That is rarely true. Often, they are trying to sell a particular product, or they may be using – advising or recommending a product that is perhaps suitable but not necessarily the best product. So that’s why we would encourage investors to ask, ask their adviser: Are you looking out for my best interest? What duty of care are you bound,” said Canan on NPR.

You can read the Consumer Financial Protection Bureau report on senior designations here.

It’s become an increasingly common crime: Elder investment fraud. Every day, there are more stories about elderly individuals – many suffering from dementia – who have been taken advantage of financially by an unscrupulous family member, stranger, friend, or even an investment adviser.

Fortunately, more attention is being paid to the issue of elder investment fraud. After a recent fact-finding initiative spearheaded by the Consumer Financial Protection Bureau (CFPB) last year, the non-profit Investor Protection Trust produced a survey about elder exploitation. Among the report’s findings: About 20% of Americans 65 years of age and older have been the victim of a financial swindle.

Criminals often target senior citizens because they manage a significant percentage of the nation’s liquid assets. They also are more likely to be vulnerable to fraud and deception because of age-related medical-conditions such as dementia, memory loss or Alzheimer’s disease. In many cases, the assets stolen from victims of elder fraud represent the individual’s life’s savings.

The scam artists behind these schemes and swindles often pose as “friends,” gaining the elderly victim’s trust. The perpetrators may be strangers or have a relationship with their targeted victim. The intent, however, is the same: To scam the intended victim out of his or her money.

Scammers who target the elderly can be difficult to detect. That’s because many of these fraudsters sound knowledgeable about the bogus product, scam or investment they are touting.  Moreover, they often have official-looking documents about the so-called investment, as well as information regarding the supposed professional credentials they possess.

Examples of common elder fraud schemes and investment scams include the following:

• Telemarketing or mail fraud. Every year, thousands of people lose money to telemarketing scams – from a few dollars to their life savings.  Fraudulent telemarketers are good at what they do. According to the Federal Trade Commission, dishonest telemarketers make an estimated $40 billion each year off of their victims. In many cases, scammers who operate by phone don’t want to give victims time to think about their pitch; their goal is just to get you to say “yes” to whatever they’re selling. Other unscrupulous telemarketers may ask for more personal information, such as checking and credit card numbers. Never provide this information via the telephone.
• Charity scams. Older Americans are especially generous when it comes to helping someone in need. And that generosity is exactly what appeals to scammers who call on unsuspecting consumers and ask for a donation or credit card information in order to help victims of recent natural disasters or tragedies. Case in point:  Type in “Boston Marathon Bombings,” and you’ll see a myriad of Web site pages appear. Some of these pages are legitimate; others may not be. Following the Boston Marathon tragedy, the Massachusetts Attorney General warned the public not to give into emotional appeals without first checking the charity in question and ensuring that any Web site visited actually belongs to a legitimate, established and registered charity.
• Redemption/strawman/bond fraud. Perpetrators of this fraud typically claim that United States Government or the Treasury Department holds a bond on every U.S. citizen and that  by submitting the proper paperwork, you can access to these “U.S. Treasury Direct Accounts.” Individuals promoting this scam frequently cite various discredited legal theories and may refer to the scheme as “Redemption,” “Strawman,” or “Acceptance for Value.” Trainers and Web sites will often charge large fees for “kits” that teach individuals how to perpetrate this scheme. They will often imply that others have had great success in discharging debt and purchasing merchandise such as cars and homes. Failures to implement the scheme successfully are attributed to individuals not following instructions in a specific order or not filing paperwork at correct times. According to the FBI, this scheme predominately uses fraudulent financial documents that appear to be legitimate. These documents are frequently referred to as “bills of exchange,” “promissory bonds,” “indemnity bonds,” “offset bonds,” “sight drafts,” or “comptrollers warrants.” In addition, other official documents are used outside of their intended purpose, like IRS forms 1099, 1099-OID, and 8300. This scheme frequently intermingles legal and pseudo legal terminology in order to appear lawful.

Part II of our blog features more scams and schemes targeting the elderly, plus how to avoid these crimes and what to do if you or loved one becomes a victim.

Senior citizens are twice as likely as younger Americans to become victims of financial fraud. According to AARP, individuals 60 years of age and older account for 15% of the U.S. population, but represent one-third of all financial fraud victims.

These statistics are even more alarming given the fact that older investors often rely heavily on their financial advisers to invest their money and plan for their retirement years. And many investors put more trust and faith into those financial advisers with “senior designations” because they believe this certification means the adviser is uniquely qualified to market, sell or give advice about certain financial products.

But that is not always the case, says a new report from the Consumer Financial Protection Bureau. Financial advisers can use some 50 senior financial designations to tout various financial products, and not all of these senior designations require expertise or rigorous training. This can be confusing to seniors and make them vulnerable to potential fraud or abuse, says the CFPB.

“Not all financial professionals with titles like ‘retirement adviser’ and ‘senior specialist’ are qualified to help you manage your money,” says Skip Humphrey, head of the Office of Financial Protection for Older Americans, which is part of the Consumer Financial Protection Bureau. “Most financial advisers are well trained reputable professionals. But credentials alone don’t guarantee expertise or the quality of someone’s training.”

The CFPB’s report offers several recommendations to help state and federal regulators better protect seniors from potential investment fraud. Among them:  Create a centralized tool for consumers to research and verify senior designations; SEC tracking of complaints related to senior designations; mandatory disclosures by individuals who claim expertise specific to seniors; and a requirement that holders of senior designations meet and maintain minimum levels of professional standards, including education, accreditation and a minimum standard of conduct.

In the interim, investors of all ages are wise to always be on the lookout for possible red flags when it comes to their investments, including:

• Overly consistent or unusually high returns. All investments carry some amount of risk. The bottom line:  If it sounds too good to be true, it probably is.
• Hard-to-understand investing strategies.  Legitimate financial advisers will take time to thoroughly explain your investments to you and answer any questions that you may have.
• High-pressure sales tactics. Reputable financial professionals will not pressure you to purchase a certain financial product or approach you with an investment whose “window of opportunity” is calls for an immediate decision.
• Guarantees. In the investing world, there are no guarantees. Period. Every investment has some potential risk.

The CFPB report, which you can read in its entirety here, was issued under a mandate from The Dodd-Frank Consumer Protection Act.

Regulators are taking a much closer look at the sales practices of brokers and firms involving high-risk investments targeting seniors. As reported April 14 by Investment News, the Financial Industry Regulatory Authority (FINRA) currently is gathering data from firms regarding the products they market to seniors, the percentage of revenue they derive from those sales and the designations they are using to market themselves to older Americans.

Elderly individuals are especially vulnerable to offers of yield-chasing and high-risk products, says FINRA chief executive Richard G. Ketchum.

“These are people who have been particularly impacted by reductions in interest rates because the cash coming from their investments often is a significant supplement to whatever 401(k), pensions and Social Security they have,” he said in the Investment News story.

During a compliance conference held last week at the Securities and Exchange Commission (SEC), panel participant Mercer Bullard, president of Fund Democracy and professor of law at the University of Mississippi, predicted that the United States is facing what he calls a “senior crisis” posed by the risk of seniors’ outliving their assets and their declining ability to manage their money.

“What we’re looking at is a massive increase in senior misery,” Bullard told the audience.

Bullard attributes some of the reasons behind this senior crisis to the increasing sophistication and complexity of today’s financial products and investments.

“There’s probably someday going to be a good argument that anyone over 75 shouldn’t be sold anything that is outside of a predetermined list of fairly simple funds, meaning low volatility and low risk,” he said in the Investment News story. “Otherwise, we’re going to see millions of seniors living on Social Security who are not expecting that to be their standard of living.”

Investment fraudsters are highly skilled at what they do and view people of all ages as potential targets for their crimes. The elderly, however, may be especially vulnerable to investment fraud and financial abuse because they often have nest eggs to invest, say aging experts. The elderly also are generally more trusting of strangers. In addition, many elderly individuals suffer from decreased cognitive functioning that, in turn, affects their decision-making capacity and makes them susceptible to people looking to defraud them.

The prevalence of elder fraud has reached epidemic proportions, according to the National Association of Area Agencies on Aging. And it will continue to grow as Baby Boomers age. Financial exploitation of the elderly – from unauthorized transactions in a victim’s brokerage account to telemarketing scams and identity theft – costs an estimated $3 billion annually, said Sandy Markwood, CEO of National Association of Area Agencies on Aging, in a December 2012 article in USA Today.

About 55% of elder fraud is perpetuated by a family member. “It’s not usually the close children, but the removed relative. And what they tend to do is try to isolate the older person, so no one can see what is going on,” Markwood notes.

According to the North American Securities Administrators Association (NASAA), some of the most common financial products and practices used in elder investment fraud include distressed real estate schemes, energy investments, gold and precious metal investments, promissory notes, private placements, and securitized life settlement contracts.

The ways and methods in which fraudsters lure victims into their net of opportunity run the gamut. But there are several common red flags associated with investment scams. NASAA offers the following list of a few of the more common ones used by scam artists:

The Pitch: This investment has a guaranteed high return, with no risk involved.

The Catch: There’s no such thing as a guaranteed investment. The higher the return, the more risk involved. Period. The guaranteed return sales pitch is often aimed at people who are non-risk takers, particularly those like the elderly who are on a fixed income or individuals who are near retirement and worried about not having a large enough nest egg. Even with legitimate investments, it’s important to know the risk level you are taking and invest only what you are willing and can afford to lose.

The Pitch: There’s a shortage of opportunity available; you need to get in before it’s too late.

The Catch: If it’s a legitimate deal, that same deal will be available tomorrow. The high-pressure sales pitch is used to create a false sense of urgency, whether it’s a limited amount of the investment product or a scarcity of time to invest. Never feel pressured to make a quick decision when it comes to investing money. Take your time and talk it over with an objective third party, some who can check the facts regarding the investment opportunity.

The Pitch: This is an offshore investment, and it’s tax free.

The Catch: You can defer paying taxes, but you can’t avoid paying them. This type of deal is often pitched as a secret and is an opportunity you should keep to yourself. Promoters of these investments hope to avoid hard questions from family, friends or financial advisers who might see through the scam. Often, your money will be transferred to overseas locations, making it harder to recover and even harder for the authorities to investigate.

The Pitch: You will profit just like the experts; get the secrets to their success.

The Catch: If the investment is so profitable, why do the investment promoters need to contact YOU out of the blue? Promoters utilizing this tactic are trying to convince you that he or she has access to inside information known only to a select few who are said to be making a lot of money. If you hear phrases like “secret markets,” “prime bank guarantees,” take your checkbook and run because secret prime bank markets simply don’t exist.

The Pitch: You can trust me. I have credentials and extensive experience.

The Catch: Credibility can be stretched and faked. If the person pitching the investment opportunity is legitimate, he or she should have no qualms about you conducting a background check. Take the time to determine if the authenticity of the individual’s education and experience requirements by contacting the organization that issued the credential. One of the first resources investors should turn to when choosing whether to do business or continue to do business with a particular firm or individual is BrokerCheck. The free tool helps investors research the professional backgrounds of current and former Financial Industry Regulatory Authority-registered brokerage firms and brokers, as well as investment adviser firms and representatives.

Elder financial fraud and abuse is a big crime in the United States. According to some estimates, the elderly lose more than $3 billion every year to financial fraud and investment scams. Many of these scams involve investments, Medicare, donations, door-to-door sales, travel deals, work-at-home jobs and prizes.

Experts who deal with elder financial fraud, including financial planners, medical professionals and social workers, say they’ve noticed an increase in elder financial abuse in recent years. From 2008 to 2010, there was a 12% increase in the amount of money scammed from seniors, according to the Consumer Financial Protection Bureau. About half of elder fraud is perpetrated by strangers, while family, friends and neighbors account for about 34% of the abuse, according to research from a 2011 study conducted by MetLife Mature Market Institute on elder financial abuse.

The increase in financial abuse and fraud of the elderly prompted the Consumer Financial Protection Bureau, the government’s new consumer watchdog group, to launch an inquiry into the issue last year.

In his former post as Attorney General of Ohio, the CFPB’s director, Richard Cordray, says he’s witnessed many instances of financial abuse against seniors – including fraudulent lottery or sweepstakes scams where criminals stole their life savings.

“Many seniors have routines, and their predictable patterns make them easier targets for predators,” noted Cordray in a speech in Washington, D.C., in June 2012. “They can be lonely or overly trusting, and we now have many methods by which perfect strangers can communicate with them, often anonymously or posing as someone they are not.”

Studies show that most elderly victims of financial abuse don’t report the crime because they are either too ashamed, don’t realize they are being duped until it’s too late to get their money back, or their adult children fail to recognize the problem in time to intervene.

Moreover, people who grew up in the 1930s, 1940s, and 1950s were generally raised to be polite and trusting, says the FBI. Con artists exploit these traits, knowing that it is difficult or impossible for these individuals to say “no” or just hang up the telephone.

“Financial exploitation against the elderly is very prevalent right now,” said Sharon Merriman-Nai, project director for the National Center on Elder Abuse, in a 2011 ABC News story on the topic. “The elderly have assets. They’ve had their lifetime to acquire savings and property.”

$2.9 billion: Estimated cost of financial exploitation and fraud for older U.S. adults in 2010.

69: Average age of an investment fraud victim.

2x: The rate at which older women are fraud victims compared to men. Most victims are between 80 and 89 of age, live alone, and need help with either health care or home maintenance issues.

51%: Estimated share of elder fraud committed by strangers. Thirty-four percent of fraud is committed by family, friends or neighbors. The business sector accounts for 12 percent.

84%: Estimated share of victims who do not report elder fraud because they are embarrassed or ashamed.

SOURCES: MetLife Mature Market Institute, AARP Foundation, Investor Protection Trust.

Doomed investment deals involving private placements have forced a number of broker/dealers to close their doors this year. Meanwhile, investors in those deals lost millions of dollars because in, many instances, the broker/dealer responsible for recommending the investments failed to perform their due diligence on the financial product they were touting.

As reported May 21 by Investment News, the Securities and Exchange Commission (SEC) is now taking a deeper look at “several areas of high risk” in the securities industry. That includes the due diligence of broker/dealers and their net capital levels.

“We’re looking at due diligence,” said Julius Leiman-Carbia, associate director in charge of the National Broker-Dealer Examination Program in the SEC’s Office of Compliance Inspections and Examinations, in the Investment News article. Leiman-Carbia, who participated in a panel discussion on Monday in Washington as part of the annual meeting of the Financial Industry Regulatory Authority (FINRA), added that he wonders if brokers truly understand all of the products that they sell to clients.

In addition to focusing on due diligence, the SEC is examining “the division between the investment adviser and broker/dealer sides” of firms that are dually registered, including the various types of controls that exist when money is [placed with] the investment adviser.

The SEC also is looking at the country as a whole in an effort to pinpoint specific areas where investor fraud – especially elder financial fraud – is more prevalent.