Mara Krotec Baginski, a gerontological social worker, said her parents still receive phone calls looking for her grandfather to tell him he’s won a sweepstakes, even though he’s been in an assisted living facility since July 2008 because of advanced Alzheimer’s.
The scammers have targeted Baginski’s grandfather, a retired physician, since 2003, calling or sending mailers requesting checks for $25 in exchange for a $25 million prize.
“My grandfather is a brilliant man but because of his dementia, he couldn’t make wise decisions and these people took advantage of that,” said Baginski, 26, who lives in Chesapeake, Virginia, and estimates her grandfather lost as much as $10,000 through the scams.
Financial abuse of older people is increasing as more seniors are being lured into investments that are unsuitable or outright swindles, according to lawyers and advocates for the elderly, Bloomberg Businessweek reports in its July 19 issue. A likely reason is the significant number of older adults who have substantial wealth and possibly diminished cognitive abilities as well, said a report by MetLife Inc.’s Mature Market Institute, a research organization focused on aging.
One out of five Americans older than 65 has been the victim of a financial scam, according to the Washington-based Investor Protection Trust, a nonprofit that promotes shareholder education. That means more than 7.3 million seniors have been taken advantage of financially through inappropriate investments, high fees, or fraud, which New York-based insurer MetLife said comes at a cost of more than $2.6 billion a year.
Older people are being targeted because “that’s where the money is,” said Kathleen Quinn, executive director of the National Adult Protective Services Association in Springfield, Illinois, referring to the quote from 1930s bank robber Willie Sutton. And those who suffer from isolation and diminished capacity make ideal targets, said Steve Riess, a San Francisco attorney who represents victims of con artists peddling bogus investments.
The fraudsters themselves are also increasingly elderly, possibly because senior citizens put more confidence in someone their own age, said Denise Voigt Crawford, president of the Washington-based North American Securities Administrators Association, which represents state regulators.
Mineral Wells, Texas-based Ronald Keith Owens, 74, was sentenced to 60 years in state prison in January 2009 for persuading investors, including retirees, to put more than $2.6 million into nonexistent bank-related investments.
In November, William Kirshner, 84, a financial adviser in Corpus Christi, Texas, was sentenced to five years in state prison for stealing more than $100,000 from senior citizens and other clients who invested in promissory notes issued by his company. The prison sentence was suspended and Kirshner was placed on probation for two years and ordered to pay restitution to eight victims.
William Walter Spencer, 68, a financial adviser in Franklin, Tennessee, sold elderly members of his church promissory notes that turned out to be fake. He pleaded guilty to fraud in May and is expected to be sentenced in August.
Veterans looking for extra cash to supplement savings may be a specific target. Several groups offer to help former soldiers sign up for a $2,000-a-month needs-based benefit from the Department of Veterans Affairs in Washington. While the program is real, some groups are telling seniors in order to qualify they have to first liquidate their assets and purchase a private annuity, which usually comes with a hefty sales commission.
Another unsuitable practice affecting senior citizens that involves insurance products is taking out a reverse mortgage and then locking up the proceeds in a multi-year annuity, even though a ban has been in place since 2008 on cross-selling the mortgages with other financial products, said Kent Smetters, a professor of insurance and risk management at the University of Pennsylvania’s Wharton School in Philadelphia. Reverse mortgages let people age 62 and older get cash out of their homes and are repaid when the borrower dies or moves.
Other inappropriate investments aimed at seniors are pools of life insurance policies, similar to the bundles of home mortgages that helped fuel the financial crisis, NASAA’s Crawford said. Some products may include policies that don’t exist, and it’s unclear whether they’re supposed to be overseen by state insurance regulators or the Securities and Exchange Commission, she said.
Principal-protected notes, which combine bonds with derivatives to offer investors bets on stocks and commodities, also are being marketed to the elderly, said John Gannon of the Financial Industry Regulatory Authority in Washington. He said seniors fall for these because the name makes it sound as if they’re risk-free; in fact the principal isn’t always protected, as holders of notes backed by Lehman Brothers Holdings Inc. learned when the firm collapsed in September 2008.
“Financial professionals, both legitimate and illegitimate, know there are assets seniors have that they can get their hands on,” Gannon said. “They’ve figured out ways to get to all of them.”
The financial-regulation bill will crack down on advisers who market themselves as specialists in investments for seniors, and another measure introduced last month in the Senate by Herb Kohl, a Wisconsin Democrat, and Kirsten Gillibrand, a New York Democrat, would include harsher penalties for anyone committing securities fraud against the elderly.
“We need better regulation of this industry,” said Kohl, 75, who heads the Senate’s Special Committee on Aging, “so seniors can tell the difference between professionals who offer clear and unbiased financial advice and bad actors who steer them toward inappropriate financial products.”