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Seniors Begin Fighting Back Against Investment Fraud


Crooks are increasingly swindling money from senior citizens by directing them into bad investment choices. By one estimate, according to the AARP, there are five million victims of elder financial abuse each year.

But senior citizens are beginning to fight back. The number of senior fraud lawsuits is on the rise, amounting to millions of dollars, as are arbitration cases filed with the NASD and the New York Stock Exchange. NASD and NYSE officials declined to comment.

April Lindauer, an associate attorney with the Chicago-based law firm Shaheen, Novoselsky, Staat, Filipowski & Eccleston, said her firm is now handling 30 such cases, double the amount from a year ago. In one case, a 60-year-old woman was cheated out of $150,000 from a friend who she knew from church.

While the outcome of that case is still pending, senior citizens' lawsuits against brokerages usually have a high success rate, lawyers say. Arbitration panels often "recognize that senior citizens have no way of recouping their losses, and they may have been sold investments unsuitable to them or investments they did not understand," said Jacob Zamansky, a partner with Zamansky & Associates of New York.

As senior fraud becomes alarmingly more widespread, regulators and senior citizen advocacy groups are rising to seniors' defense. The AARP launched a major campaign earlier this year to warn them against financial exploitation, underscoring the importance of verifying the appropriateness of the products being sold and the credentials of the person selling them.

"We have been hearing many more stories and concerns from older investors who are losing their investment security through fraudulent marketing practices and inappropriate recommendations of products," said Sally Hurme, an attorney with AARP's financial protection team.

The Securities and Exchange Commission raised awareness of the issue last month through a senior summit. The SEC said its staff receives tens of thousands of calls a year from people who have been scammed or who have been sold investments that they don't understand. Today, 45% of all investment fraud complaints are from seniors, according to the SEC, which plans to counter that through education, enforcement and targeted examinations of brokerages.

As to why senior fraud is on the rise, it's largely because of the vast amount of wealth in the hands of the nation's 77 million Baby Boomers. Of the total $21 trillion that consumers hold in financial assets, according to a study by the Federal Reserve, 75% is held by households headed by people 50 years or older. Thus, many fraudsters are preying on Baby Boomers, many of whom will begin retiring in five years when they reach age 65.

And scam artists are finding it easy to exploit the elderly due to their trust, financial naivete, cognitive impairments, social isolation, dependency, fear or embarrassment, according to the AARP.

"In the 1980s and 1990s, fraudsters went after the younger investors who were involved with penny stocks and IPOs. Now, senior citizens are the focus of fraud and probably will be for the next decade as they have accumulated wealth," said Bill Singer, a securities lawyer with Gusrae, Kaplan Bruno & Nusbaum of New York.

The lawsuits are nationwide, but are particularly cropping up in states where there is a large retirement population, such as Florida and Arizona.

While there are different ways that seniors are being conned, investment seminars that include a free lunch are becoming an increasingly popular tactic among brokerages across the board, from large wirehouses to small boutiques.

Once at the seminar, senior citizens are sold inappropriate investment options that do not fit their retirement needs-usually variable and indexed annuities. The investments can lock up retirement money for long periods of time and have high fees for taking money out of the account if needed in an emergency.

"It is a difficult task to teach seniors, but they have to be equipped with enough knowledge and be able to ask the right questions to avoid fraud," said Michael Lynch, an attorney with Orlando, Fla.-based Hooper & Weiss, who has noticed a large increase in advertisements for free lunch seminars in his area. "If an individual has any suspicion, they should move on and find another broker."

As the incidence of senior fraud continues to increase, brokerages should become more proactive to curtail fraudulent activity, attorneys said. "Brokerages need to be more vigilant in supervising their brokers," Zamansky said. In some instances, unscrupulous brokers looking to generate high commissions may hold investment seminars for the elderly.

One option for brokerages is to flag and track client accounts when they hit retirement age, reviewing the portfolio and making sure they are invested in age-appropriate products. If a client's account looks suspicious, they should contact the client and confirm the account status, Singer said.

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