The Securities Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and the North American Securities Administrators Association (NASAA) have identified several products and practices that make regular appearances in fraud schemes that target elders and senior citizens. Elders and senior citizens should read the following list and be careful to keep in mind these potential fraud schemes:
Charitable Gift Annuities – Sellers may pose as an employee of a charity and promise investments will go to the charity when in actuality, money invested goes straight into the seller’s pocket. Seniors and elders should make sure the charity is legitimate and that they are aware of the salesperson’s activities.
“High Return” or “Risk-Free” Investments – no investment is risk free. Promises of high returns are often false. The better the investment sounds, the more on guard seniors and elders should be.
Investment Adviser Services – although investment advisers have a fiduciary duty to their clients – a duty to act in their client’s best interest, this is not always the case. Seniors and elders should keep track of their own investments and finances to ensure their money isn’t being diverted for the investment adviser’s own use.
Certificates of Deposit (CD) or Bonds – Certificates of Deposit offers a higher rate of interest than a regular savings account and boasts a federal deposit insurance of up to $100,000. Seniors and elders should check with the issuing bank or thrift institution to ensure the Certificate of Deposit is legitimate and remain wary of promises of above-market returns.
Equity Indexed Certificates of Deposits – Returns are based on a stock market index, which depends on the performance of the stock market. If a senior citizen or elder needs quick access to their retirement funds, equity indexed certificates of deposits are not the right choice.
Promissory Notes – Companies use promissory notes as a “promise” to pay back loans paid by investors. Sometimes the promissory note is honored. Other times, seniors and elders have been tricked into investing and the promissory note is never honored, resulting in a large loss of funds.
Sale and Leaseback Contracts – Sale and leaseback contracts fraud schemes commonly involve the sale of a piece of equipment or real estate that is located in an inconvenient place requiring seniors and elders to enter into a service agreement in order to maintain the equipment. Sellers may even promise to buy back the product at the original purchase price. However, the equipment or real property may not even exist and the seller may not have the funds to buy back the product.
Unsuitable Investment Recommendations – If an investment adviser makes investment recommendations to seniors or elders, be sure to obtain and thoroughly familiarize yourself with the risk profile of each recommendation.
Churning – “Churning” happens when brokers generate commissions by making unnecessary and excessive trades in customer accounts because they were allowed to make trades without approval from the client. Seniors and elders should keep an eye out for unusually high trading activity in their account statements and require prior approval for every trade.
High Pressure Sales Seminars – Oftentimes, these seminars are a hurried affair, forcing the seniors and elders into making decisions and buying products that are unsuitable and may cause the seniors and elders to lose money. Seniors and elders should never rush or feel like they have to invest.
Prime Bank Schemes – Seniors and elders should beware of trading and purchasing “prime bank” financial instruments commonly located overseas or outside the US securities markets. These financial instruments and markets may not even exist.
Pump and Dump Schemes – “Pump and dump schemes” involves misleading or false statements about a company’s stock going up, causing investors to sell their shares only to be left with worthless or devalued stock. Seniors and elders should be aware of any security priced below $5, does not trade on a registered securities exchange, and pay heed to thoughts of “that sounds too good to be true” – it probably is.
Variable Annuities – Annuities are often a poor choice for seniors and elders. There is no tax deferment and high surrender charges for early withdrawal of funds. Typically, insurance companies set the maturity date to a date past the senior’s or elder’s lifetime.
The following insurance companies and banks have been known to sell annuities: Massachusetts Mutual Life Insurance Company, Principal Life Insurance Company, Jackson National Life, Pacific Life Insurance Company, Aviva Life and Annuity Company, Athene Annuity & Life Assurance Company, Genworth Life Insurance Company, Midland National Life Insurance Company, Bankers Life and Casualty Co, North American Company for L&H Ins, Security Benefit Life Insurance Company, EquiTrust Life Insurance Company, and Guggenheim Life and Annuity.
Early Retirement – Elders and seniors who have been told about early retirement schemes that will allow them to live comfortably for the duration of their lives should make sure the scheme is legitimate before investing their retirement funds and consequentially losing it all.
All of the above-listed schemes the Securities Exchange Commission and Financial Industry Regulatory Authority have encountered. Millions of dollars has been defrauded from seniors due to these very schemes. All seniors and elders, and anyone making an investment, should make sure what they’re investing is legitimate and trustworthy. Otherwise, rather than gaining money, seniors and elders can lose everything.
ABOUT THE AUTHOR: Evans Law Firm, Inc.
Ms. Evans is with Evans Law Firm, Inc. in San Francisco and practices in the area of consumer fraud, insurance and elder financial and physical abuse cases, as well as toxic torts. Ms. Evans has represented public entities in private attorney general actions, has extensive experience in complex civil cases and was undefeated in jury trials as a former deputy city attorney in San Francisco. Ms. Evans serves on the Board of Directors for Consumer Attorneys of California and is the first Chair of the Womens’ Caucus. She also serves on the Board of Governors for Public Justice, and the American Association for Justice (formerly ATLA) and is Co-Chair of the Class Action Litigation Group for AAJ.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the auth