WASHINGTON — “Free Food. Free Golf. Free Drinks.” “Dinner is On Us!” “Act now!” Investment seminar pitches like these abound in areas with large populations of retirees, and regulators are warning seniors to be wary.
A probe of the meetings has uncovered high-pressure sales pitches for unsuitable products, misleading claims and even outright fraud, federal, state and securities-industry regulators said Monday.
The Securities and Exchange Commission held a “seniors summit” on investment fraud and abusive sales practices with the North American Securities Administrators Association, which represents state securities regulators; AARP, the advocacy group for seniors; and the Financial Industry Regulatory Authority, the securities industry’s self-policing organization.
While their promoters paint the “free lunch” seminars as educational sessions, sometimes promising that nothing will be sold, “they are designed to sell — either at the seminar itself or later,” said Lori Richards, director of the SEC’s Office of Compliance Inspections and Examinations. “They’re not educational events.”
The investigation conducted by the SEC, state regulators and FINRA found the use of scare tactics to get seniors to question their current investments, claims of fantastic returns with no risk, and “ringers” in the audience who would stand up and offer testimonials of how much they had earned.
The investigation, which ran from April 2006 to June 2007, was conducted in seven states with large numbers of retirees: Alabama, Arizona, California, Florida, North Carolina, South Carolina and Texas.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said he planned to put forward a legislative proposal to address “the financial exploitation of America’s seniors.”
“I am alarmed by the unscrupulous, fraudulent and abusive practices highlighted” by the regulators’ report, Dodd said in a statement issued after Monday’s meeting. “Regrettably, these practices appear to be part of a growing trend of predatory behavior targeted towards America’s seniors.”
By law, the sales pitches made at the seminars and the materials provided to participants must be approved by a brokerage or investment firm’s supervisors and submitted to review by FINRA.
But nearly 60 percent of the 110 investment firms and branch offices examined showed evidence of weak supervision of the employees running the seminars, according to the investigation’s report. That is significant, Richards said, and indicates that many firms putting on the seminars need to “immediately step up” their supervision of salespeople. The firms were not named.
Jeannie Bunton, a spokeswoman for the Securities Industry and Financial Markets Association, Wall Street’s biggest lobbying organization, said the group had not yet read the report and had no immediate comment on that finding. Association President and CEO Marc Lackritz did say in a statement that “flimflam artists and fly-by-nighters with their gimmicks and come-ons undermine the public’s trust and have no place in the financial services industry.”
Indeed, 14 of the 110 examinations showed apparent instances of fraud, such as liquidating accounts without a customer’s knowledge or consent or selling bogus investments — and have been referred to appropriate authorities for possible enforcement action. Fraud against seniors also can occur, for example, in the sale of oil and gas partnerships or phony promissory notes.
People 60 and older make up 15 percent of the country’s population but account for an estimated 30 percent of fraud victims. An estimated $16 trillion — three-quarters of the nation’s consumer financial assets — is held by households headed by people 50 or older, and regulators expect an increase in scams targeting retired baby boomers.
In the past two years, the SEC has brought more than 40 enforcement cases involving alleged fraud against seniors, many in coordination with state authorities. In addition, FINRA, known until recently as the National Association of Securities Dealers, has filed cases against a number of brokerage firms and individual employees.
“Our research shows that almost one in five seniors who lost money on an investment attribute that loss to being misled or defrauded,” said Mary Schapiro, FINRA’s chairman and chief executive. “This concern is real, and confronting it will require a focused regulatory effort.”
Among other things, FINRA is examining whether brokers are using so-called “professional” designations to mislead and defraud senior investors.
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