The American Institute for Certified Public Accountants has recently conducted an analysis on investment fraud schemes and how they target senior citizens.
As part of the analysis the AICPA found that because many retirees fear that they won’t have enough money in savings, investments, or Social Security benefits to cover their remaining years, they can be more vulnerable to fraudulent investment schemes that promise large returns.
Historically, scammers relied on cold calls, but now they frequently form relationships — business, personal, or romantic — with retirees who may be lonely.
One area of concern is that of self-directed individual retirement accounts. These IRAs permit a broader set of investments than regular IRAs, and have become a prime vehicle for fraud. Self-directed IRAs allow retirees to move funds out of a traditional IRA and put them into real estate, mortgages, tax liens or other less-conventional investments. As such, they have become a key way for fraudulent brokers or dealers to access the vast sums represented by IRAs that have, until recently, been locked up. The AICPA found that the large amounts potentially available have attracted organized crime groups, corrupt investment advisers and sometimes unethical family members and caregivers.
In addition, techniques for reaching senior citizens have become more sophisticated. Historically, scammers relied on cold calls, but now they frequently form relationships — business, personal, or romantic — with retirees who may be lonely. Subsequently, the thieves use predatory techniques to defraud their victims. In the case of self-directed IRAs, they may have learned to mimic the language used in the tax code that legitimate IRA administrators employ.
Senior citizens, families and communities can work together to protect each other. Families and trusted advisors should watch for signs of cognitive deterioration and/or suspicious interactions. Some items to consider may include a change to the mailing address, bank account or power-of-attorney information. The AICPA identified the following key steps:
- Watch out for aggressive sales tactics, misleading sales documents, or claims of high returns with little or no risk. Similarly, be wary of promises of quick profits, offers to share “inside” information, and pressure to invest quickly.
- Ask questions about dealers’ licensing and experience. For example, have they worked with retired people before? How are they paid for their services? Are they registered with the SEC or the Financial Industry Regulatory Authority? Try to independently confirm their answers.
- Verify their standing on the Investment Adviser Public Disclosure website for firms registered with the SEC, the Central Registration Depository for stockbrokers, or the Investment Adviser Registration Depository.
- Watch out for offshore scams and investment opportunities in other countries.
- Never pay in advance.
- If you suspect any type of elder financial abuse, report it immediately.