Elder Financial Fraud: Part II
Research shows that the ability to make sound financial decisions lessens with age, as dementia and other types of mental impairment increase. Financial scammers are all too aware of the medical problems affecting the elderly and see them as a prime target for their financial fraud schemes.
In Part I of our blog series on financial fraud, we discussed the rise in the number of elderly individuals who have become victims of financial abuse and fraud. In this post, we look at some of the common schemes that scammers use to keep their crimes afloat.
According to a 2012 study by the Center for Retirement Research, most investment frauds share one thing in common: They sell something that either does not exist or ultimately will not live up to the financial reward being promised. Sometimes the “investment” is in the form of a share in a company; in other cases, scammers tout a product or security.
Following the high-profile investment fraud case of Bernie Madoff, most people are now familiar with Ponzi schemes. The Securities and Exchange Commission (SEC) describes a Ponzi scheme as an investment fraud involving payments of purported returns to existing investors from funds contributed by new investors. In most instances, operators of Ponzi schemes solicit new investors by promising to invest their funds in investment opportunities that will generate high returns with little or no risk. A Ponzi scheme collapses – and it eventually always will – when new investors stop supplying money.
Another common investment fraud scheme involves so-called high-yield investments.
This particular form of investment fraud is especially popular when stock- and bond-market returns and yields on certificates of deposit are low, according to the Center for Retirement Research. As part of the scam, the con men claim the securities they sell have the impossible combination of low risk and very high returns.
In the wrong hands, legitimate insurance products can be a tool to victimize elderly investors. Specifically, fraudsters use the increased complexity of insurance products such as variable annuities or viatical and life settlement investments to take advantage of their unsuspecting victims.
A viatical, or life settlement, is an investment whereby an investor purchases the right to receive the benefit on a terminally ill or elderly person’s life insurance policy. An investor in a viatical settlement profits when the insured dies and the benefit paid is more than the price paid for the policy and the expenses that were needed to keep the policy active.
In 2009, vitatical settlements were the focus of a 25-page indictment against Joel Steinger, Steven Steiner, Michael McNerney and Anthony Livoti Jr. of Mutual Benefits Corp. Among other things, the men were charged with conspiracy, mail fraud, wire fraud and money laundering. The company raised more than $1.25 billion from more than 30,000 investors before being shut down by federal regulators in May 2004. Nearly 30,000 victims lost about $1 billion.
Meanwhile, the perpetrators pocketed millions and millions of dollars from investors to fund extravagant lifestyles that included multi-million-dollar homes, expensive cars, horse farms and international travel.
Other forms of elder financial fraud include wrongfully using an elderly person’s funds, forging his or signature on a checking or brokerage account, signing a contract, or deceiving an elder into handing over certain property or assets.
One of the most popular ways that scammers commit fraud against the elderly is through “free-lunch seminars.” At many of these gatherings, the firms or individuals sponsoring the seminars typically provide a free meal, door prizes, or vacation deals to encourage people to attend. The goal of the meetings, however, is to entice individuals to open new accounts with the sponsoring firm or invest in a certain financial product.
Some of the investments discussed at free-lunch seminars include private placements, variable annuities, real estate investment trusts, equity indexed annuities, mutual funds, and reverse mortgages, according to the SEC.
(In Part III of our blog series, we’ll highlight some of the red flags of Elder Financial Fraud.)