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Senior Citizens Easy Target for Private-Placement Scams

Senior investors are an easy and vulnerable target for financial fraud. Individuals 65 or older manage a large percentage of the nation’s liquid assets and, most important to the perpetrators of financial fraud schemes, they are often more susceptible to money schemes and deception due to physical or mental limitations.

Many senior citizens who become victims of financial exploitation suffer in silence, never reporting the crimes to authorities out of fear or embarrassment. Other victims are afraid of losing their independence or that family members may move them into a nursing home.

According to the AARP, financial scammers cheat investors out of some $40 billion a year, and seniors are the most common targets. As reported by the North American Securities Administrators Association (NASAA), some of the most popular financial scams involve “investment pools” to collect money that is then used to purchase and renovate distressed real estate properties. In reality, however, these so-called flips are often Ponzi-like schemes in which the scammer takes the investor’s money to pay off previous investors. Like most Ponzi schemes, the ruse eventually falls apart when there are not enough new investors to continue the scheme.

Another popular investment scam targeting the elderly involves certain promissory notes or private placement investments. The note itself may promise high returns through a private investment, according to NASAA. But in reality, unregistered promissory notes can be a cover for Ponzi schemes or another type of financial fraud.

One prominent case that resulted in investors losing millions of dollars in fraudulent oil and natural gas private placements was that of Provident Royalties, LLC.

The Securities and Exchange Commission (SEC) filed fraud charges against Provident and three company founders in the summer of 2009 for their role in the scheme, which turned out to be an elaborate $485 million Ponzi scheme.

Investors of any age encouraged to always check with their state securities regulator to determine if an investment involving promissory notes or private placements and its sponsors are properly registered.

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