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The SEC Guide to Protecting Seniors Against Investment Fraud


The SEC guide offers a variety of suggestions to help senior citizens protect their assets from fraud

An estimated 7.3 million American seniors have been victimized by financial or investment fraud, and most experts believe that elder financial fraud is becoming more of an issue as the population ages. Each year, the SEC shuts down and investigates millions of dollars’ worth of investment scams aimed at seniors and other vulnerable groups. That means it’s never been more important to understand the signs of financial abuse, and a new guide published by the SEC’s Office of Investor Education and Advocacy helps seniors do just that. In a nutshell, here’s what it says:

Asking smart questions is key to keeping your portfolio safe

Unethical brokers and other individuals promoting fraudulent investments prey on the ignorance of potential investors, so ask questions and find the answers. Imagine you were a journalist assigned to write an investment review; after thorough research, would you recommend the investment to your readers?

When looking up an investment, it’s advisable to gather information on multiple subjects, including the company’s history, the career and regulatory histories of company executives (and the person selling you the investment), and the potential risks that the investment might carry for investors. To do this, you may want to use the SEC’s EDGAR database, a service that allows investors to examine the financial statements of many companies. To check on the broker trying to sell you an investment, you can easily use FINRA’s BrokerCheck reports to read up on their regulatory history, as well as any complaints that have been filed against them.

It’s important to make sure you get your information from verified sources, such as the sites mentioned above, or trustworthy publications (i.e. those that do not have a financial incentive to recommend certain investments). Beware of information on private company websites, chat rooms, message boards, and other unverified sources. While some of these sources may be able to warn investors about potential scams, much of the data on the internet is wildly inaccurate.

Don’t rush into a large investment without research and thorough consideration

One of the most common hallmarks of financial fraudsters is an attempt to rush buyers into making an investment without taking the time to consider the potential risks. Scammers will often employ some supposed external financial constraint, sometimes claiming that the price will double, or the investment won’t be available if the buyer waits more than a day or two. In these and other cases, investment sales people often take advantage of the fears of retirees, so it’s essential to stay calm and not let a dramatic presentation convince you to make a rash decision.

Remember, investment salespeople can be extremely convincing, so don’t base any investment decisions on how someone sounds. Instead, do your best to take a rational look at the facts, consult research and experts, and make an informed, independent opinion about whether purchasing a specific investment is likely to help you get closer to your financial goals.

If a broker or company won’t allow you to cash out your investment, you could be a victim

Unless you have specifically agreed to purchase a type of illiquid investment, you should be able to sell your investment at any time. If a broker or advisor says they will not allow you to access your funds, demand access anyway; in many cases, by this stage, a broker will have already stolen some of the investor’s funds. Many scammers will attempt to convince investors to reinvest, or “roll-over” their principal and profits, but don’t be fooled by this common trick.

Be wary of investments promising high returns, and remember that nothing is guaranteed

All investments have risk; and in the vast majority of cases, potential risk and potential rewards go hand-in-hand. The riskier an investment is, the more likely it is to provide a higher return over time. There is no such thing as a 100% guaranteed investment, and investors should be wary of investments promising returns far greater than the market average. In general, this is about 10-11% for stocks and considerably less (closer to 4-5%) for most bonds. There are exceptions, of course, but most salespeople promising far above these amounts are being inaccurate at best, and in many cases, could be actively deceiving customers about the nature of their products.

Becoming aware of the most common types financial scams may help seniors avoid them

When it comes to fighting elder financial fraud, information is the best weapon. If seniors fully understood the investments unethical financial advisors try to sell them, they likely never would have purchased them in the first place.

Here are a few of the most common types of scams:

  • Ponzi and pyramid: these fraudulent investments schemes rely on a constant influx of cash from new investors in order to keep paying off the old ones. Of course, these schemes are unsustainable and usually end in disaster.
  • Oil and gas: many fraudulent investment salespeople hawk oil and gas investments as the next big thing; but in many cases, the investments they’re selling are fraught with risk. Always verify the exact nature of any commodities-based investment well before you consider buying it.
  • Promissory notes: are a form of debt to a company, like a bond, often with a fixed rate of return. While they exist, they are almost never sold directly to the public – so if someone is offering to sell them, it could be a scam.
  • Prime bank fraud: occurs when scammers convince investors that high-level bankers have special access to high-yield investment programs (HYIPs) and “prime bank” financial instruments – access to which the investor can also get, at a price. The problem: neither of these two instruments, nor the imaginary markets upon which they trade upon, really exist.
  • High return/risk free investments: if an investment salesperson offers investments like junk bonds, penny stocks, options, and futures, especially if they claim the investments are low-risk or risk-free, be wary. As mentioned before, no investment is without risk – and high-risk purchases like futures simply aren’t compatible with the investment goals and financial needs of most retirees. This unsuitability is a common issue with unethical financial advisors.
  • Internet fraud: can come in the form of emails, social media messages, or a sophisticated-looking website. Remember, with today’s tech, it takes only a few minutes to create a website, so don’t be fooled by outward appearances. Beware of any unsolicited emails or messages, especially those asking you to share personal financial information. Never give your personal info to an unverified source.

Investors with professional designations may or may not be more qualified to handle your investments

There are many investment professionals who have titles, professional certificates, or other designations that they may claim make them more qualified to recommend investments to seniors or to more effectively manage the portfolios of retirees. Unfortunately, there is no one universal professional body that grants these types of titles. That means that each of these certifications or designations needs to be researched independently to understand what they are and what they mean for you. It’s also important to understand that no particular senior investment certifications have ever been approved by FINRA or the SEC – so you should take every title, designation, or certification with a big grain of salt.

If you think you’ve been the victim of an unethical broker or financial advisor, contact the correct regulatory and government agencies, as well as an experienced securities attorney

No matter what happens, don’t be afraid to complain if you think you might have been the victim of investment fraud. The perpetrators of elder financial fraud rely on the fear and silence of individuals to get away with unethical or illegal behavior. The more quickly you file a complaint, the easier it is to research the claim and the better chance there is to recover lost funds. In addition to contacting the correct regulatory agency, investors should also contact an experienced securities arbitration and elder financial fraud lawyer.

The attorneys at Silver Law Group are leaders in the field of securities arbitration. We represent individual and institutional investors across the United States who have lost money at the hands of a trusted financial advisor. Our services are provided on a contingency-fee basis, which means we are only compensated if there is a recovery of losses. Contact us for a complimentary consultation about your situation.

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