Why Elder Financial Fraud Is on the Rise

Elder abuse is described as the crime of  of the 21st century.  It continues to be one of the most underreported crimes.  Please see the following article which appeared in Forbes magazine on February 28, 2012.


Why Elder Financial Fraud Is on the Rise

Forbes – February 28, 2012

There are few crimes that bother me more than elder fraud.

I hear and read about these stories all the time. Older investors are routinely fleeced with products they don’t need and certainly can’t understand. They are trusting, usually isolated and often cognitively impaired. They like to pick up the phone and talk to people. When they get invitations for free steak dinners, they go and then feel obligated to buy the dreck the sponsoring brokers are selling. Pick up any paper in any retirement area. They advertise all the time.

Despite their vulnerability, older folks are prime targets for scam merchants.

A new study by the Center for Retirement Research at Boston College confirms what many of us professional observers already know: the Internet has only created new selling channels for scamsters.

“Fueled by the Internet, the incidence of financial fraud is on the rise. Law enforcement officials and fraud experts expect the trend to continue or accelerate as aging baby boomers increasingly become targets. According to the Federal Trade Commission (FTC), Americans in 2010 submitted more than 1 million complaints about financial and other fraud – up 35 percent in just three years. But these data do not fully represent fraud’s pervasiveness, because researchers say that it often goes unreported to the authorities.”

More importantly, the Center’s study shows, based on Federal Trade Commission data, that the median loss per person has nearly tripled from $218 in 2002 to $594 in 2010.

Why are older investors getting held up for more money? When it comes to complex products like insurance or structured products, investors may not even know how much they are being charged or the true risks of their investments. Details are always buried in legalese and never in plain English on the first sheet of the prospectus.

One thing that’s a perennial in these cases: Commissions are outrageously profitable for brokers and agents. Commissions and total internal fees can be obscene (except if you’re a broker) on get-rich products like promissory notes or private placements. Then there are identity theft scams and cold-calling brokers who are selling boiler-room investments over the phone. They’re even more lucrative for the perpetrators.

Every agency I can think of from the Securities and Exchange Commission to local areas on aging has regularly warned older investors about scams, but there are never enough vigilant eyes to go around.

Since I’ve studied elder fraud over the past two decades, I don’t think any academic or regulator will challenge me on the fact that most of these crimes go undetected. Older investors often don’t know they are being ripped off. And when they find out, they are profoundly embarrassed and may not tell their significant others or family members.

Often, as I discovered in a story I did on elder fraud years ago — which still happens every day — is that the perpetrators are family members. Usually they are wayward children who move in with mom or dad then fleece them by gaining power of attorney. There aren’t even any reliable statistics on this type of crime because it’s almost never reported. One case I profiled involved a 103-year-old Illinois woman who had to turn in her son for this kind of financial abuse.

How do we better police elder fraud? I’ve never been convinced that there will be enough government watchdogs to do the job. We need to invest significant social capital at a grassroots level. Visit or talk to your older relatives, neighbors and friends on a regular basis. Ask them to tell you if they’ve received solicitations like the following:

Any attempt to get personal information such as a Social Security number, bank account or driver’s license number. One scam — that my 84-year-old father alerted me to — involved debt collectors trying to convince people to pay them for debts they didn’t owe. Here are some other red flags:

  • Any callers, mailers or emails demanding that they act immediately. They always make “limited-time offers” sound appealing.
  • Any offer that demands a fee up front or any special action.
  • Anything that comes with a “free” meal, trip or gift.
  • Anything that claims to offer a high rate of return that’s either guaranteed or no risk.
  • Any “debt-settlement” offer that claims to clear up debts.
  • Any solicitor who is aggressive or who urges someone “not to tell their family.”
  • Any solicitor operating in or near a nursing home, community center or veteran’s facility.
  • Any product that’s too difficult to explain in one sentence.
  • Any would-be financial advisor who claims to be a “senior/retirement specialist” who is not a fiduciary such as a certified financial planner, lawyer or chartered financial analyst.

Most younger adults have enough sense to smell whether something foul is afoot. Yet we need to spend more time with older folks to lead them away from these rotten transactions. It’s a family and community responsibility.