Senior citizens are among the most vulnerable members of our society. Unfortunately, there are too many who would take advantage of their frail physical states and diminished mental capacities for their own ends. Financial fraud against the elderly, including investment fraud, is much more common than it should be and likely will grow even more common as the American population ages. Protect yourself and your loved ones by familiarizing yourself with common investment fraud schemes, how fraudsters operate, and the legal remedies available to you should you become a victim.
Financial Fraud is Common Among Seniors
Seniors (those aged 60 and over) are the most common target of fraud schemes. The Federal Bureau of Investigation’s Internet Crime Complaint Center reports that, in 2020, this group suffered by far the most significant loss from fraud — a total of 105,301 victims lost a total of $966,062,236. Compare this to the 30-39 age group, which counted 88,364 victims and a loss of $492,176,845. While these numbers are also large, they pale in comparison to those for individuals aged 60 and older.
Common Investment Fraud Schemes Targeted toward Seniors
Investment fraud can take many forms. Fraudsters and unscrupulous stockbrokers are clever and constantly devising new ways to separate their victims from their money and avoid the consequences. However, a few types of investment fraud schemes are more common than others.
Free Seminars
Fraudsters often lure their victims in with free seminars featuring free meals. These seminars are often held at fancy hotels or restaurants to give them an air of legitimacy. While these types of seminars are not automatically indicative of a scam, fraudsters often use them to gather a captive audience and engage in high-pressure sales tactics.
Ponzi Schemes
A Ponzi scheme is an investment scam that purports to pay investors lavish returns but, in reality, uses the funds collected from new members to pay previous investors (as well as keeping a portion for themselves).
Unregistered Investments
Most securities must be registered with the Securities and Exchange Commission before being offered for sale. However, some securities — known as unregistered securities or “private placements” — may nonetheless be sold to qualified investors. Unfortunately, fraudsters often use unregistered investments for fraudulent purposes because they are exempt from some of the rules and regulations that are designed to protect average investors.
Affinity Fraud
Affinity fraud occurs where the perpetrator abuses a position of trust or authority within a particular group to defraud that group’s members, often by posing as a member of that group. They are common in churches and community organizations, and they may involve the perpetrator enlisting the help of community leaders to advance the fraud.
Pump and Dump Schemes
A pump and dump scheme occurs where the perpetrator artificially runs up the price of a share (typically by false and misleading statements about the company issuing the stock) to entice investors. The perpetrator then “dumps” the shares on the market, causing those who invested to lose money.
High-Yield Investment Programs
A high-yield investment program (HYIP) is a scam that promises huge returns to the investor with little or no risk. Some HYIPs offer annual returns of up to 100%. Most of these programs are merely Ponzi schemes.
Unsuitable Advice
Stockbrokers and financial advisors generally have fiduciary obligations toward their clients. This means that they must act solely in their clients’ best interest, avoiding any self-dealing or personal interest. For seniors, stockbrokers must take into account their clients’ age, financial circumstances, health, and other factors. Investment fraud can occur when a stockbroker or financial advisor counsels his or her client into investing in an unsuitable financial product, such as an annuity.
Common Red Flags that Can Indicate Investment Fraud
Perpetrators of investment fraud engage in a wide range of tactics to defraud the elderly. Some of these tactics are designed to build trust and confidence in the perpetrator, while others are designed to pressure or coerce the victim into doing something they would not do otherwise. Below are a few signs that you might be dealing with an investment scam.
- The deal seems too good to be true: Investments that promise yields far in excess of what is typical on well-known stock indexes could be scams or are at least extremely risky. If it doesn’t “feel” right, it probably isn’t.
- The return rate is “guaranteed”: All investments carry a certain amount of risk; in most cases, the higher the return, the higher the risk. Do not believe anyone who tells you that extremely high returns are guaranteed.
- The broker claims to be a “senior specialist”: Some financial professionals hold themselves out as being licensed “senior specialists” who are uniquely qualified to dispense financial advice to seniors. While this does not automatically mean they are fraudsters, neither the Securities and Exchange Commission nor the Financial Industry Regulatory Authority endorses that term or others like it, such as “retirement advisor.”
- The broker is pressuring you to buy immediately: Legitimate brokers allow their clients time to think about their transactions and weigh the pros and cons. A broker who is pressuring you into a “once-in-a-lifetime opportunity” that you must act on immediately is likely a scam artist.
- You are “specially selected” for an investment opportunity: If a stockbroker tells you that you have been “specially selected” for an investment opportunity, it is likely because he or she believes you are a good mark for a scam.
- You are told to keep information about the investment to yourself: Unscrupulous brokers tend to tell their clients to keep information secret because they do not want their victims to get second opinions from others that could out the broker as a scam artist.
It is also a good idea to keep in mind that scam artists do not always appear “sketchy” in the traditional sense of the term. Many perpetrators of investment fraud have slick, polished websites and legitimate addresses and phone numbers. However, these things are all easy to acquire and should not be taken as signs of legitimacy in themselves.
Signs that You or an Elderly Loved One May Have Been Defrauded
Many senior victims of investment fraud do not realize they have been defrauded until well after the fact. After all, it usually takes time to realize a gain on any investment — even legitimate ones. The lapse between the original fraud and its discovery can make these crimes challenging to prosecute, as the time gap gives the perpetrator an opportunity to disappear. If you suspect that you may have been defrauded by an investment scam, ask yourself if you are experiencing any of the following signs of investment fraud:
- The broker does not return your phone calls, emails, or letters
- You do not recognize the transactions on your statements
- Your investment declines sharply in value in a short period of time
- Most of the investments recommended to you by the broker are also dropping in value
- You are losing money in a hot market
- You realize that your broker forgot to disclose certain “fine print” terms to you
- Your results are different from what your broker promised you
These warning signs do not necessarily mean you have been defrauded, as even legitimate investments do not always do well. However, they can alert you to the possibility of fraud and point you in the right direction to investigate.
How to Avoid Investment Fraud as a Senior
The best way to avoid investment fraud is to understand how scam artists work and lookout for some of the common tactics they employ. Beyond that, here are a few steps you can take to protect yourself from becoming the victim of investment fraud:
- Ask plenty of questions and investigate the seller: Shrewd investors ask plenty of questions to make sure they understand the details of their transactions, and ethical brokers are happy to disclose the fine print.
- Do not rush into investment decisions: Do not capitulate to pressure to “act now.” Instead, take your time to look into the investment, the broker, and the company through which it is being offered, and take a few days to think about it.
- Don’t judge a book by its cover: Many fraudsters who target seniors know how to manipulate their victims using the appearance of professionalism and fine manners.
- Beware of unsolicited offers: Unsolicited offers often turn out to be scams. Do not purchase investments from someone you don’t know who approaches you first without investigating them.
- Talk it over with a third party: Generally, it is a good idea to discuss an investment opportunity with a third party who has your best interests in mind, such as a friend or family member, your regular stockbroker, or an attorney.
Most importantly, report suspected investment fraud. Many incidents of investment fraud — even unsuccessful attempts at investment fraud — go unreported because the victims are too embarrassed to admit that they were taken advantage of. Investment fraudsters are smart and capable of fooling even sophisticated investors. Reporting fraud or attempted fraud makes it less likely that the fraudster will strike again.
