Probe of seminar for seniors finds fraud
Too_Many_Tools
Writer
Mon Sep 10, 5:53 AM ET
An investigation by federal and state regulators of "free lunch"
investment seminars aimed at seniors has found high-pressure sales
pitches masquerading as educational sessions, pervasive misleading
claims for unsuitable financial products, and even fraud.
Much of the blame goes to investment firms for failing to properly
supervise their employees who put on the seminars for seniors,
according to the report of the investigation being made public Monday.
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.
The examination by the Securities and Exchange Commission, state
regulators and the securities industry's self-policing organization,
the Financial Industry Regulatory Authority, covered seven states that
have large numbers of retirees: Alabama, Arizona, California, Florida,
North Carolina, South Carolina and Texas.
The investigation, which ran from April 2006 to June 2007, focused on
110 investment firms and branch offices that sponsor sales seminars
for seniors with free meals.
SEC Chairman Christopher Cox called the investigation's findings "a
wake-up call for securities regulators, the financial-services
industry and, especially, older investors."
"The SEC and our fellow regulators intend to put a stop to this," Cox
said in a statement. "We will step in whenever false claims are being
made. We will sanction crooks who try to feast on the life savings of
older investors."
Among the findings:
_The popular "free lunch" or dinner seminars, often held at upscale
hotels, restaurants and golf courses, are advertised as educational
sessions or workshops at which no products will be sold. They are
actually sales presentations, pushing those attending to open new
accounts and make investments on the spot or in follow-up meetings
with the salespeople.
_Nearly 60 percent of the 110 investment firms and branch offices
examined showed evidence of weak supervision of the employees running
the seminars, including failure to review the seminar materials.
_Exaggerated or misleading claims - like "Immediately add $100,000 to
your net worth" - showed up in about half of the 110 inspections
performed by the regulators.
_Recommendations for unsuitable investments were found in 23 percent
of them.
_Thirteen percent showed apparent instances of fraud, such as
liquidating accounts without a customer's knowledge or consent, or
selling bogus investments.
The "free lunch" seminars are one of several areas being examined by
regulators and lawmakers involving practices that can drain older
Americans' retirement savings. People 60 and older make up 15 percent
of the country's population but account for an estimated 30 percent of
fraud victims. With baby boomers swelling the ranks of retirees,
regulators expect an increase in financial scams targeting them.
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.
FINRA also has been conducting inspection "sweeps" in several other
areas affecting seniors: pitches for people to retire early and cash
out their 401(k) accounts under an IRS rule; sales of collateralized
mortgage obligations, complex and potentially risky investments tied
to mortgage securities; so-called senior financial investment
specialists, a designation said to be devoid of real value; and life
settlements, in which the holder of a life insurance policy sells it
to a third party for more than its cash surrender value but less than
the net death benefit.
FINRA is taking "a multifaceted approach to a problem that can have
absolutely devastating consequences for a large proportion of our
population," the organization's chairman and chief executive, Mary
Schapiro, said in an interview.
Joseph Borg, president of the North American Securities Administrators
Association, said the investigation of seminars for seniors proved the
proverbial point: "There's no such thing as a free lunch."
"Seniors seeking investor education and advice at a seminar should not
be subject to misrepresentations, high-pressure sales tactics and
outright fraud," Borg said.
The SEC is holding a "seniors summit" Monday on investment fraud and
abusive sales practices with FINRA; the North American Securities
Administrators Association, which represents state securities
regulators; and AARP, the advocacy group for seniors.
___
On the Net:
Securities and Exchange Commission: http://www.sec.gov
Financial Industry Regulatory Authority: http://www.finra.org
North American Securities Administrators Association: http://www.nasaa.org
AARP information on investment scams: http://www.aarp.org/money/wise_consumer/investment_fraud