Seniors favorite target of investment scams

Top 10 investment scams

April 23, 2001: 5:03 p.m. ET

Seniors are favorite targets as fraud moves from Wall St. to Main Street

NEW YORK (CNNfn) - Securities fraud is spreading beyond the boundaries of Wall St. to reach the most vulnerable victims, including the elderly, according to a report released Monday by state regulators.



	Scammers are pitching their investments as low risk and high return. That's an impossible combination. The higher the return, the higher the risk.



	Deborah Bortner NASAA President

The North American Securities Administrators Association (NASAA) released its "Top 10 Investment Scams" list and said a growing number of scam operators are enlisting independent insurance agents to push their schemes.

"While the vast majority of agents are doing what they should and looking out for their clients, a growing minority, lured by high commissions, are relying solely on marketing claims that are misleading or false," NASAA President Deborah Bortner said.

Some new scams have cropped up in the past year, NASAA said, including payphone and ATM investments and certificates of deposit with 10- to 20-year maturities sold to older Americans who never get the chance to cash them in.

"Our volatile markets have investors, particularly older Americans, dependent on predictable interest income, looking for safe havens," Bortner said. "So scammers are pitching their investments as low risk and high return. That's an impossible combination. The higher the return, the higher the risk."

Seniors are favorite targets
That insurance agents would wittingly or unwittingly be able to draw seniors into fraudulent schemes is not surprising, according to Jane King, manager of consumer protection with the American Association of Retired Persons (AARP).

"Con artists love an environment of trust," King said, "and insurance agents already have the trust of older people."

King said seniors are often overwhelmed by the complexity, variety and rapid rate of change in today's financial markets. Con artists prey on that, using slick promotion and a chameleon-like ability to tell the victim anything they want to hear. "The greatest friend of con artists is lack of knowledge," King said.

	WARNING SIGNS
		How to tell if someone is scamming an elderly loved one

Retired people are favorite targets because they usually have a steady income from retirement or social security, have some savings and want to supplement their income to pay for health care or to have something to pass on to their heirs.

Many seniors that fall victim to con artists are too embarrassed to report the fraud, making it difficult to track with precision the true cost of securities fraud. But the damages are in the billions of dollars, according to the AARP and the NASAA.

In order to avoid falling into a con artist's trap, King advises following some simple guidelines.

First, don't respond to an offer right away, especially if it's from someone you don't know. "One of the earmarks of fraud is urgency," King said. "Any tendency to push should raise suspicion. They'll say, 'Don't think so hard... follow your gut.'"

Don't listen to them, King said. Instead, check them and their plan out with your state regulatory agency, which can be found in the white pages of your phone book under "Government" or at www.nasaa.org.

King also advises people to establish short- and long-term financial goals and plan for these goals with registered financial advisors whose backgrounds they've investigated thoroughly.

"Even if it's a relatively small investment, these decisions are very important," King said.

Top 10 scams
NASAA's top 10 scams of the moment include:

Unlicensed individuals, such as life-insurance agents, selling securities: NASAA suggested investors contact their state securities regulator to make sure such agents are registered to sell securities. If they're not registered, NASAA said, don't buy securities from them.
Affinity group fraud: Scammers use their victim's religious or ethnic identity to gain their trust.
Payphone and ATM leasing: People are encouraged to buy shares of payphones and ATMs with the promise of a high return on their initial investment. Many of these have turned out to be "Ponzi" or "pyramid" schemes, in which the money of one investor is used to pay off another.
Bogus promissory notes: Little-known -- sometimes non-existent -- companies issue short-term debt instruments that promise high returns with little or no risk.
Internet fraud: Scammers continue to use the Internet to "pump and dump" thinly traded stocks and publicize schemes.
Ponzi/pyramid schemes: These were named in honor of Charles Ponzi who perfected the scam in the early 1900s. Inevitably, NASAA said, such schemes collapse.
Callable CDs: High-yielding certificates of deposit are sold to elderly investors, but they don't mature for 10 to 20 years unless the bank redeems them, and early redemption may subject the victim to losses of up to 25 percent of the original investment. NASAA said sellers of callable CDs often try to hide the risks and restrictions involved.
Viatical settlements: Investors buy an interest in the death benefits of terminally ill patients, hoping to cash in when the patients die. These are "extremely speculative," NASAA pointed out, because it's impossible to predict when someone will die, and victims sometimes end up buying into the benefits of healthy people.
Prime bank schemes: Scammers promise a high rate of return by accessing the investment portfolios of the world's "elite" banks. These are popular with conspiracy theorists, NASAA said, who think they're sharing the "secret" investments of the rich and powerful.
Investment seminars: These seminars, often touted in newspaper, radio and TV ads and "infomercials," usually benefit nobody but the person running the seminar.

NASAA urged investors to be skeptical about get-rich-quick schemes and to contact their state securities regulatory agency if in doubt about the people peddling such plans.