Senior Fraud Initiative

The Retirement Industry Trust Association (RITA) supports initiatives to reduce fraud against senior citizens and all Americans. As a national trade association representing trust companies, custodians and providers of trust services to individuals and companies with self-directed retirement plans, RITA seeks to promote awareness and education among Americans to help prevent fraud aimed at seniors. This report will provide many resources for individuals to better understand the elements of senior fraud and thereby avoid being scammed in the future.

Many government agencies such as the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), Federal Deposit Insurance Corporation (FDIC) and the Financial Industry Regulatory Authority (FINRA) work with state regulators such as the National Association of State Securities Commissioners (NASAA) to organize systems to report and prevent senior fraud schemes. They have also joined forces with organizations such as the Better Business Bureau (BBB) and the Association of Retired Persons (AARP) to research and report scams targeted at older Americans.

The Retirement Industry Trust Association will work in cooperation with these government agencies as part of their commitment to limiting the acceleration of these activities within their industry segment.

 Definition: Fraud

In the broadest sense, a fraud is a deception made for personal or professional gain. What is consumer fraud? It is defined as any deception, pretense, false statement, false promise or misrepresentation made by a seller or advertiser of merchandise. Concealment, suppression, or failure to disclose a material fact may also be considered consumer fraud in certain instances. Merchandise is broadly defined to include any objects, wares, goods, commodities, real estate or services. Financial abuse is another term that is widely used to describe when a person or entity takes or keeps an elder’s property for wrongful use or with the intent to defraud.

 Fraud Statistics

According to research conducted in several statewide surveys around the country, fraudulent telemarketing techniques have victimized 26 percent of the entire U.S. adult population at some point in their lives. Every year, these victims, 57 percent of whom are over the age of 50, lose a total of $40 billion to telemarketing fraud alone, according to a 2001 AARP study. The Federal Trade Commission estimates that 25 million Americans are victims of consumer fraud each year. Identity theft alone hits 10 million victims each year. Older investors are a favorite target of con artists who focus on investment fraud. Research shows that baby boomers and older investors are natural targets for a wide variety of unscrupulous marketing practices because they have had more time to accumulate significant assets for retirement. Pursuit of seniors’ “nest eggs” is one of the fastest growing consumer fraud issues today.

The U.S. Census Bureau reports that there are 37.3 million people 65 and older in the United States as of 2006. This represents 12 percent of the total population. A Baby Boomer (born between 1946 and 1964) turns 60 every 8 seconds. Between 2005 and 2006, this age group increased by 473,000 people. The U.S. population age 65 and over is expected to double in size within the next 25 years. By 2030, almost 1-out-of-5 Americans – some 72 million people- will be 65 years or older. By the year 2050, there will be 86.7 million people age 65 and older comprising 21 percent of the total population. The age group 85 and older is now the fastest growing segment of the U.S. population according to a recent study by the National Institute on Aging. Florida (17.9%), Pennsylvania (15.6%) and West Virginia (15.3%) are the “oldest” states, with the highest percentages of people age 65 and older.

 Targets: Seniors

Since seniors own more than half of all the financial assets in America, they are the primary targets for fraudulent practices. It is estimated by the U.S. Subcommittee on Health and Long Term Care that even though seniors only represent 12% of the population, they represent 30% of the scam victims. This vulnerability exists for many reasons: seniors can be lonely and take phone calls from strangers at home; they are susceptible to “get-rich-quick” pitches when money is tight; they tend to be polite and not hang up the phone. They can be scammed by strangers coming to their houses and offering help. And they can be targets of Internet scams promising large awards of cash, prizes, travel or unrealistic investment returns. This financial exploitation must be tamed by vigilant regulators and service providers seeking to better educate older Americans in methods to prevent further abuse.

 Are Crimes Reported?

It is estimated that just one in a hundred cases of senior fraud is reported. Seniors may not know where to go to report the crime or are too embarrassed so they hide the crimes. If seniors do report the crime, it is sometimes difficult for them to remember exact details. Most of these crimes occur within the home so they can more easily be hid from family, friends and advisors.

Who commits the fraud? Caregivers, con artists and unscrupulous salespersons are the primary instigators of senior fraud. The tactics used are intimidation, fear, friendliness, authority and control to get the victim to send money or share private financial information to participate in the scam.

Here is a list of many of the common financial schemes used to defraud seniors:

Advance Fee Scheme: An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of great value, such as a loan, contract, investment, or gift, and then receives little or nothing in return. This may involve the sale of products or services, the offering of investments, lottery winnings, “found money, or many other “opportunities. Clients usually are asked to pay a “finder’s fee” in advance. Victims often then learn that they are ineligible for financing and receive nothing. 

Advance Fee Scheme: An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of great value, such as a loan, contract, investment, or gift, and then receives little or nothing in return. This may involve the sale of products or services, the offering of investments, lottery winnings, “found money, or many other “opportunities. Clients usually are asked to pay a “finder’s fee” in advance. Victims often then learn that they are ineligible for financing and receive nothing. 


Affinity Group Fraud: Members of closely-knit religious, cultural, military, and professional groups are targeted by con artists who share (or claim to share) the same characteristics or interests. Con artists often snare respected community leaders to spread the word about the scheme by convincing them of the legitimacy of the fraudulent investment. Affinity fraud exploits the trust and friendship among people. 

ATM Theft: Seniors should be very careful when using an ATM at a bank to withdraw cash. Con artists will observe account numbers and passwords in order to duplicate transactions or steal cash from seniors as they exit ATMs. 

ATM Theft: Seniors should be very careful when using an ATM at a bank to withdraw cash. Con artists will observe account numbers and passwords in order to duplicate transactions or steal cash from seniors as they exit ATMs. 

Auction Fraud: Auction fraud involves fraud attributable to the misrepresentation of a product advertised for sale through an Internet auction site or the non-delivery of products purchased through an Internet site. Typically, the seller posts the auction as if he resides in the United States, then responds to victim with a congratulatory email stating he is outside the country for business reasons, family emergency, etc. The subject requests funds to be wired directly to him via Western Union, MoneyGram or bank-to-bank wire transfer. Romania is a country frequently associated with this type of fraud. Once the funds are transferred, it is very difficult for any recovery.

Charity Scams: These scams usually involve a recent natural disaster such as a hurricane or flood and request funds for relief. Sometimes they can involve offers to invest in bonds to reconstruct devastated areas.

CD + Bonus: Companies promise investors tantalizing high rates of return on Certificates of Deposit by including a bonus payment to attract investors, but then talk the person into buying a different investment. Recently, a firm offered one-year CDs, purportedly FDIC-insured, with higher interest rates than actually available from FDIC-insured institutions. The firm paid the bonus, and the investors were tricked into purchasing high-priced annuities.

Contractor Fraud: A van or truck with out of state license tags stops at a senior’s home and knocks on the door. The handyman offers to do repairs for the senior at very reasonable rates. No references are checked or written contract signed. The work begins and can often be shoddy and incomplete. The senior can be overcharged for the work and may be left with more household problems.

Coin Investment Scams: These scams happen when the coin is selling the victim gold coins as an investment. Usually the victim receives the coins; however, the con greatly exaggerated their value, and the victim pays considerable more than the coins are worth.

Counterfeit Cashier’s Check: The counterfeit cashier’s check scheme targets individuals that use Internet classified advertisements to sell merchandise. Typically, an interested party located outside the United States, contacts a seller. The seller is told that the buyer has an associate in the United States that owes him money. The seller will have the associate send him a cashier’s check for the amount owed to the buyer. The amount of the cashier’s check will be thousands of dollars more than the price of the merchandise and the seller is told the excess amount will be used to pay the shipping costs associated with getting the merchandise to his location. The seller is instructed to deposit the check, and as soon as it clears, to wire the excess funds back to the buyer or to another associated identified as a shipping agent. In many instances, the money is sent to location in West Africa, particularly Nigeria. Because a cashier’s check is used, a bank will typically release the funds immediately, or after a short hold. Falsely believing the check has cleared, the seller wires the money as instructed. In some cases, the buyer is able to convince the seller that some circumstance has arisen that necessitates the cancellation of the sale, and is successful in conning the victim into sending the remainder of the money. Shortly thereafter, the victim’s bank notifies him that the check was fraudulent, and the bank is holding the victim responsible for the full amount of the check.

Counterfeit Drug Scams: Due to the nature of aging, seniors can be the main target for online pharmacies. Many of these online pharmacies will advertise cheaper, yet more effective medications than the reputable pharmacy provides. When the drugs arrive, they are often useless knockoffs. Seniors lose money and their health can be jeopardized.

Credit Card Fraud: This often happens when foreign subjects use fraudulent credit cards. The unauthorized use of a credit/debit card, or card number, to fraudulently obtain money or property is considered credit card fraud. Credit/debit card numbers can be stolen from unsecured websites or can be obtained in an identity theft scheme.

Debt Elimination: Debt elimination schemes generally involve website advertising a legal way to dispose of mortgage loans and credit card debts. Most often, all that is required of the participant is to send $1,500 to$2,000 to the subject, along with all the details of the participant’s loan information and a special power of attorney authorizing the subject to enter into transactions regarding the title of the participant’s homes on their behalf. The subject then issues bonds and promissory notes to the lenders that purport to legally satisfy the debts of the participant. In exchange, the participant is then required to pay a certain percentage of the value of the satisfied debts to the subject. The potential risk of identity theft-related crimes associated with the debt elimination scheme is extremely high because the participants provide all of their personal information to the subject.

Employment/Business Opportunities: Employment/business opportunity schemes have surfaced wherein bogus foreign-based companies are recruiting citizens in the United States on several employment-search websites for work-at-home employment opportunities. These positions often involve reselling or reshipping merchandise to destinations outside the United States. Prospective employees are required to provide personal information, as well as copies of their identification, such as a driver’s license, birth certificate, or social security card. Those employees that are “hired” by these companies are then told that their salary will be paid by check from an Untied States company reported to be a creditor of the employer. This is done under the pretense that the employer does not have any banking set up in the United States.

The amount of the check is significantly more than the employee is owed for salary and expenses, and the employee is instructed to deposit the check into their own account and then wire the overpayment back to the employer’s bank, usually located in Eastern Europe. The checks are later found to be fraudulent, often after the wire transfer has taken place. 

Escrow Fraud: Purchases through online auction sites (such as eBay) have become a popular arena for fraud. Online escrow services are used for expensive purchases. Legitimate online escrow companies act as a neutral third party to hold the buyer’s payment until the buyer receives the merchandise. However, fraudulent escrow companies lure unsuspecting buyers or sellers to transact business through their Web site and then keep the funds and/or goods. 

Funeral & Cemetery Fraud: Death can be used as a threat to seniors who want to take care of their own funeral arrangements. Vendors can persuade them into purchasing unnecessary caskets when their bodies are being cremated or expensive funerals when death occurs. 

Identity Theft: Identity theft occurs when someone appropriates another’s personal information without their knowledge to commit theft or fraud. Identity theft is often a vehicle for perpetrating other types of fraud schemes. Typically, the victim is led to believe they are divulging sensitive personal information to a legitimate business, sometimes as a response to an email solicitation to update billing or membership information, or as an application to a fraudulent Internet job posting. 

Internet Extortion:Internet extortion involves hacking into and controlling various industry databases, promising to release control back to the company if funds are received, or the subjected are given web administrator jobs. Similarly, the subject will threatened to compromise information about consumers in the industry database unless funds are received.

Investment Fraud: Investment fraud is an offer using false or fraudulent claims to solicit investments or loans, or providing for the purchase, use or trade of forged or counterfeit securities. The broker or agent may or not be licensed as a securities or insurance salesperson and the investment is more than likely non-existent .

Letters of Credit: Death can be used as a threat to seniors who want to take care of their own funeral arrangements. Vendors can persuade them into purchasing unnecessary caskets when their bodies are being cremated or expensive funerals when death occurs.

Lotteries: The lottery scheme deals with persons randomly contacting email addresses advising them they have been selected as the winner of an International lottery.

There is usually an offer of a large sum payout with a request to contact the processing center to collect your winnings. Front end fees of $1,000 to $5,000 are solicited. Once the fees are collected, no lottery winnings are ever distributed.

Phishing/Spoofing: Phishing and spoofing are somewhat synonymous in that they refer to gorged or faked electronic documents. Spoofing generally refers to the dissemination of email which is gorged to appear as though it was sent by someone other than the actual sources. Phishing, often utilized in conjunction with a spoofed email, is the act of sending an email falsely claiming to be an established legitimate business in an attempt to dupe the unsuspecting recipient into divulging personal, sensitive information such as passwords, credit card numbers, and bank account information after directing the user to visit a specified website. The website, however, is not genuine and was set up only as an attempt to steal the user’s information.

Ponzi Scheme: A Ponzi scheme is essentially an investment fraud wherein the operator promises high financial returns or dividends that are not available through traditional investments. Instead of investing victims’ funds, the operator pays “dividends” to initial investors using the principle amounts “invested” by subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds, or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”.

Prime Bank Note: International fraud artists have invented an investment scheme that offers extremely high yields in a relatively short period of time. They purport to have access to “bank guarantees” which they can buy at a discount and sell at a premium. By reselling the “bank guarantees” several times, they claim to be able to produce exceptional returns on investment. The purpose of these frauds is generally to encourage the victim to send money to a foreign bank where it is eventually transferred to an off-shore account that is in the control of the con artist. From there, the victim’s money is used for the perpetrator’s personal expenses or is laundered in an effort to make it disappear

Prizes/Sweepstakes: Scams in which the con claims the victim is the winner of a sweepstakes contest; prizes may be cash, cars, vacations, electronics, jewelry, etc. Usually, the victim must pay “taxes” on the prize or make a purchase from the company. Prizes are worth considerably less than what was represented.

Spam: Spam is unsolicited electronic mail sent to a large number of addresses, usually advertising some product, service, business, Web site, scheme or strategy. Stock spams are the electronic equivalent of a boiler room sales operation in which a stranger tries to sell you securities, like penny stocks, or put aggressive and suspect messages on an electronic message board to spur interest in a company.

Variable Annuity Sales: As sales of variable annuities have risen, so have complaints from investors-most notable, the omission of disclosure about costly surrender charges and steep sales commissions. The surrender charges on a new or exchanged annuity typically span 7-10 years. The purchase of an annuity inside an IRA may not maximize tax savings. Seniors should be careful to review their time horizons for withdrawals and required minimum distributions from IRAs that begins at age 70 ½ years old.

Viaticals/Life Settlements: Terminally ill or elderly people sell the death benefit of their life insurance policies at a discount for cash. A broker then sells shares, usually to many investors, each of whom receives a proportionate share of the death benefit when the insured person dies. These investments are often promoted as “guaranteed,” but actually they are very risky. Investors rely completely on the broker’s company to find the policy, obtain ownership of the death benefit, pay the premiums, track the status of the insured person’s health decline, and make payment of the insurance proceeds. While many of the viatical companies are legitimate, historically some have been corrupt and/or failed at business.
The above-referenced types of schemes should be looked at as typical. As quickly as new technology emerges is as fast as predators can create new methods for targeting seniors with new ploys.

 What is the government doing to curtail the spread of senior fraud?

The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the North American Securities Administrators Association (NASAA) have many initiatives to protect senior investors. They work jointly to identify effective practices by financial services firms who deal with senior investors and provide information about these practices publicly
These regulators have increasingly focused on protecting older investors, many investment advisers and broker-dealer firms are evaluating their current practices in serving seniors. SEC staff, FINRA and the NASAA solicit input from all interested parties in order to identify strong supervisory, compliance and other practices used by financial services firms serving seniors in the following areas: marketing and advertising to seniors; account opening; product and account review; ongoing review of the relationship and appropriateness of products; discerning and meeting the changing needs of customers as they age, surveillance and compliance reviews; and training for firm employees. This effort is one part of the multifaceted coordinated national initiative to protect seniors from investment fraud and sales of unsuitable securities that was announced by SEC Chairman Christopher Cox, NASAA, and FINRA (formerly the National Association of Security Dealers and the New York Stock Exchange) in May, 2006. The initiative has several components, including targeted examinations, enforcement of the securities laws in cases of fraud against seniors, and active investor education and outreach.

 Free Lunch Seminars

In September of 2007, these government agencies coordinated efforts to research “Free Lunch” Sales Seminars sponsored by financial services firms to target sales of investment products to seniors with an offer of a free meal for attendees. Sales seminars are often advertised in local newspapers, through mass-mailed invitations, mass-email, and on websites. The following states were selected due to their large populations of retirees: Florida, California, Texas, Arizona, North Carolina, Alabama and South Carolina. Targeted examinations were conducted in order to review firms that offered sales seminars for seniors and retirees. Specifically, the exams reviewed: 

• Advertising, seminar materials and sales literature for any misrepresentations, exaggerations, or omissions of material information;
• Customer transactions to evaluate suitability of investment recommendations that were made; and
• Supervisory systems, policies, and procedures used to detect and prevent violations of the securities laws for adequacy.

These examinations produced the following findings:

• Sponsors of the “free lunch” sales seminars offer attractive inducements to attend. These can include free door prizes, vacation deals and free books.
• The target audience is seniors
• The seminars are designed to sell investment products such as variable annuities, real estate investment trusts, equity indexed annuities, mutual funds, private placements of speculative securities and reverse mortgages.
• In only 5% of the seminars did the regulators find effective controls for supervision and compliance.
• Half of the exams found that firms used misleading or exaggerated claims.
• The target audience is 23% of the exams indicated that registered representatives or investment advisers holding the sales seminars had recommended investments that did not appear to be suitable for the customer.
• 13% of the seminars may have involved fraud including serious misrepresentations of risk and return, liquidation of accounts without the customer’s knowledge or consent, and sales of fictitious investments.
• One of the conclusions of these “Free Lunch” Sales Seminars is that investors should take time to research the financial services firms, the financial adviser and the product being offered before opening an account or making a purchase.

 Resources List

Here is a list of resources for seniors seeking information on investments and investment advisers

1. SEC: The SEC provides information on different products, asset allocations and risk. http://www.sec.gov/investor/seniors.shtml.
2. FINRA: FINRA provides an online service for investors to check the backgrounds of brokers called Broker Check http://www.finra.org/InvestorInformation/InvestorProtection?ChecktheBackgroundofYourInvestmentProfessional/index.htm
   FINRA’s website also has tools and resources to protect senior investors and help them make informed investment decisions, including “Investor Alerts” that provide timely information on steering clear of investment scams and problems. See http://www.finra.org/InvestorInformation/InvestorAlerts/index.htm
3. NASAA: The North American Se curities Administrators Association (NASAA) also has helpful information available for specific states. This organization is very proactive in providing resources for senior investors. http://www.nasaa.org/Investor_Education/Senior_Investor_Resource_Center/
   Regulators have warned that seniors may be confused by designations that imply some expertise in helping seniors select investments. Information regarding professional designations is available through NASAA’s Investor Alert at www.nasaa.org, the SEC’s information is at http://www.sec.gov/investor/pubs/senior-prfdes.htm and FINRA’s professional designation database is at http/??apps.finar.org/DataDirectory/1/prodesignations.aspx.
4. FTC: The Federal Trade Commission(FTC) works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. They also enter Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. The FTC website is http://www.ftc.gov or call 877-FTC-HELP
5. BBB: The Better Business Bureau (BBB) www.BBB.org is also an excellent resource for researching businesses that have been reported for fraudulent or deceptive practices.
6. AARP: The Association of Retired Persons (AARP) has provided resources and funding for many research projects in various states in order to uncover scams targeted at senior citizens. They also have numerous free publications to help seniors become more astute investors. Go to http://www.aarp.org

 Tips to Avoid and Prevent Being Scammed

• Sign up for the national “do not call” registry. Call 888 382 1222 from the phone number you want to register. You can also register online at www.donotcall.gov.
• Don’t sign up for any contests, sweepstakes, or “free” offers for anything.
• Shred financial documents and paperwork with personal information before you discard them.
• Close unused credit cards or bank accounts at least once a year.
• Protect your Social Security number. Give it out only if absolutely necessary or ask to use another identifier.
• Don’t give out personal information over the phone, mail or the Internet unless you know who you are dealing with.
• Don’t give out passwords for any of your accounts to anyone
• Don’t give out your credit card numbers to any strangers.
• Never click on the link provided in an e-mail if you don’t recognize the sender. It may contain a virus that can contaminate your computer.
• Don’t be intimidated by an e-mail or caller who suggests dire consequences if you do not immediately provide or verify financial information.
• If you believe the contact is legitimate, go to the company’s Web site by typing in the site address directly or using a page you have previously bookmarked, instead of a link provided in the e-mail.
• Don’t pay in advance for anything.
• Review all offers in writing.
• Be aware of being kept on the phone for a long time.
• Get a phone number and call the person back.Get a phone number and call the person back.
• Be wary of promises of quick profits, offers to share “inside” information, and pressure to invest before you have an opportunity to investigate.
• Be careful of promoters who use “aliases.” Pseudonyms are common online, and some salespeople will try to hide their true identity.
• Words like “guarantee,” “high return,” “limited offer,” or “as safe as a CD.” are red flags.
• Watch out for offshore scams and investment opportunities in other countries.
• If a company is not registered with the SEC or the Secretary of State where it is located.
• If a financial adviser cannot be found through FINRA.
• Don’t assume that people online are who they claim they are.
• Ask the online promoter whether-and how much-they are being paid to sell the product.
• Do business with people you know.
• Make sure you understand the investment before you invest your money.
• Take your time to make decisions.
• Be sure to talk over all financial decisions with a trusted family member, friend or financial adviser.
• Report any frauds and any potential investment frauds affecting Americans to local, state or federal regulators.
• Never make a check out to a financial adviser.
• Never allow statements or confirmations to be sent directly to your financial adviser without receiving copies
• Recommendations from a sales representative based on “confidential information”, an “upcoming favorable research report” a “prospective merger or acquisition,” or the announcement of a “dynamic new product.”
• Never act on a recommendation from your sales representative that you make a dramatic change in your investment.
• Pressure to trade the account in a manner that is inconsistent with your investment goals and the risk you want or can afford to take.
• Do not heed any assurances from your sales representative that an error in your account is due solely to a computer or clerical error. Insist that the branch manager or compliance officer promptly send a written explanation and follow up to make sure the error is fixed.

Perhaps the best prevention technique is to identify and research the persons, products and companies offering their services. The more education and understanding of the product features, especially investment products, the higher the level of scrutiny can be applied. In the event of any suspicious calls,emails or personal solicitations, report it to the proper authorities.

 Conclusion

The Retirement Industry Trust Association is committed to curtailing the spread of senior fraud. As the population ages and more Americans become senior citizens with “nest eggs,” they become greater targets for fraud and deception. The ease of access for criminals to contact seniors through the internet and telephone increases as more creative schemes emerge. Regulators are making significant steps to crack down on perpetrators but seniors must also take precautions to limit access by strangers. Particular attention should be taken when any solicitations involve investment pitches and research done by seniors to determine if the salespersons are properly licensed, educated and associated with reputable firms. The Retirement Industry Trust Association also works in conjunction with the various government agencies to research and report any fraudulent practices imposed on seniors and retirees. As an organization, RITA is building coalitions to work the Association of Retired Persons and the Better Business Bureau in order to curtail the spread of senior fraud.