Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

SEC Spotlights Investor Education: Everybody Loses When Scammers Hit

Some investors just can't resist the next big thing, even when there's a chance they'll lose everything, so the Securities and Exchange Commission has been operating fake Internet scams to teach those would-be victims a lesson.

"These websites really look good," said Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations. "They really look like the real thing."

Or, that is, they look like the real, fake thing. It's pretty simple, too. The SEC just sets up a web page that touts some great investment play - most recently, the regulator was promoting a get-rich-quick scheme associated with Hurricane Katrina cleanup - and when people click for more information, they get a message not too different from, "Gotchya!"

But the lesson doesn't stop there, Richards said. The regulator also directs the investor to one of its authentic sites that provides information on how to avoid more dangerous scams. They also try to teach them a few realities about the investing world, particularly that saving for retirement is a long-term effort and money can't be made overnight.

"We've found it to be extremely successful," Richards said during a panel discussion at last week's "The Baby Boom and Beyond Forum," hosted by the North American Securities Administrators Association in Washington.

While the panel discussion also revealed some important insight on educating consumers and marketing to Baby Boomers, the SEC and NASAA used the event as an opportunity to highlight a new joint effort that focuses on protecting elderly investors.

Part of an initiative that, as Richards conveyed, SEC Chairman Christopher Cox asked his staff to begin work on the day he arrived at the regulator last summer, the program is designed to protect seniors from investment fraud and the sale of unsuitable securities. Its three primary components are aggressive enforcement action, targeted exams at intermediaries and active investor education and outreach.

"It's always a terrible thing to steal someone's savings," Cox said during a lunchtime speech at the forum, "but there surely is a special place in Hell for those who would prey on the Greatest Generation, and rip off the life savings of the children of the Depression who defeated Nazism, Fascism and Communism."

To further the effort, Cox announced, the SEC will convene a Senior Summit this summer. The meeting, he said, will bring together every regulator and important organization that has a stake in protecting the elderly from investment scams and advisers who shill inappropriate products. New research from NASD on why seniors fall prey to fraud will also be revealed and closely examined.

Regulators, however, confront a number of hurdles in the fight against fraud on the elderly, the panel discussion disclosed. Chief among them is the fact that they're easy targets, primarily because they matured during an era where a handshake, or a spoken pledge, was good as gold. Some are alone, too, and enjoy the companionship that fraudsters promise.

Also, many victims don't come forward, which makes it tough to nab perpetrators. Richards said many seniors feel partly responsible, while others are simply embarrassed that they were taken. Others still don't know where to turn for help in recovering their assets.

"Despite that reluctance and that dynamic, at the SEC we receive thousands of complaints every year from investors, many of them seniors, and they are terribly tragic tales and the most appalling stories," she said.

The industry is also urged to support the Elderly Justice Act, said Cecil Swamidoss, counsel to the Senate Special Committee on Aging. Introduced late last year by Senator Orrin Hatch (R-Utah), the act would raise the issue of elder abuse, fraud and neglect to a national level like that of domestic violence and child abuse. There are no Federal laws in that area. The legislation is currently in the Senate Finance Committee, and on the House side, it's drawn 27 co-sponsors and is in committee, as well.

While the bill contains key provisions for training and educating elderly investors, it also targets financial services professionals, regulators and law enforcement officials who aren't familiar with the attitudes of seniors.

"I would recommend that you call your legislator and support this bill," Swamidoss said.

But seniors aren't the only consumers who are susceptible to con artists. Thus, the panelists noted, there are few issues confronting the financial services industry that deserve greater attention.

"These people are dirt bags, and they hurt the industry terribly," said Marc Lackritz, president of the Securities Industry Association, a New York trade group that represents mostly intermediaries. "We are in complete common cause with state regulators, the SEC and SROs to get these dirt bags out of the business."