Financial Scams Burden Seniors, Investments

Financial Scams Burden Seniors, Investments
Arkansas Securities Commissioner Heath Abshure says many seniors are too embarrassed to report that they were victims of a scam. | (Photo by Jason Burt)

A growing number of Arkansas seniors are being targeted in fraudulent schemes and investment opportunities, derailing a lifetime of planning and absorbing money that could be used on real investments.

The scams can drain government resources when seniors lose what is sometimes their only income, in addition to putting a drag on economic development in the state. But seniors often will not report the scams for fear of embarrassment or losing their independence.

Last year, the Federal Trade Commission received more than a million fraud complaints nationwide, which amounted to $1.6 billion in losses.

Arkansas Securities Commissioner Heath Abshure said a “staggering” number of seniors in the state have been invited to participate in so-called free lunch seminars, which are often used to draw people into sham investments. The lunches usually offer investment advice or opportunities advertised as little or no risk and high returns.

“Any time a senior citizen is talking to someone trying to sell an investment, unless that person doing the selling knows that senior citizen, their age, their health, their income levels, their expenses, their plans for the future, all of those kinds of things, they can’t make a suitable recommendation,” Abshure said. “So any time a salesperson just recommends an investment and says it’s suitable for everybody, they’re really not doing an analysis, they’re just trying to do something.”

Liquidating Securities

In one consent order filed this year, Abshure wrote that Michael Hazen Martin of Hot Springs, who was then a registered investment adviser representative with Brookstone Capital Management LLC, was targeting people of retirement age and encouraging them to attend his seminars.

At the events in Hot Springs, Mountain Home and Little Rock, Martin encouraged attendees to liquidate their securities, arguing that the industry was obsolete and full of dishonesty, and to invest in equity-indexed annuities for a fee. But Martin withheld information about the investments, which he had no reasonable grounds to believe were suitable for the attendees, Abshure wrote.

Martin was fined $50,000 and voluntarily withdrew his registration with Brookstone.

The commissioner said that while the schemes are a growing problem, it’s difficult to put a number on the complaints because many seniors refuse to participate in an investigation or provide identifying information that would allow his office to take action. He said many seniors don’t want to admit they were taken advantage of or are too embarrassed to report the scams.

Abshure said people behind the frauds will go where the money is, which is usually older people with more savings and investments, and know that there is less of a chance of the crime being reported.

“These fraudsters prey on the fears of the victims,” he said. “They know that senior citizens worry about outliving their savings, seeing all their financial resources vanish overnight, either by some horrible medical catastrophe or by a downturn in the market, and that fear can cloud their good judgment. They’re looking for someone to provide them comfort and reassure them, and a lot of the time it’s these fraudsters that are just promoting nothing. There’s nothing there. They’re just taking their money.”

More Seniors Targeted

Information compiled by the FTC shows the number of fraud complaints made by consumers has increased every year since 2006.

Last year in Arkansas, 4,504 people reported that fraudulent schemes cost them a total of $6.9 million. In 2008, complaints filed by people 50 years and older made up 30 percent of all fraud complaints. By 2013, that number increased to 47 percent of all complaints.

“Unfortunately, available data indicates that scamming of seniors is a serious problem that’s only getting worse,” Michael Rowett, associate state director for communications for AARP Arkansas, said in an email.

Rowett said in an interview that the AARP tells its members to not give out personal information and to educate themselves about different scams. The organization created a Fraud Watch Network website to provide more information about scams and how to report complaints.

Jim DePriest, deputy attorney general in the office’s Public Protection Department, said seniors have been more susceptible to certain scams in the past, including online, by phone and through the mail. He said more seniors have been victims in the past of work-at-home schemes, fraudulent sweepstakes and fake charities.

“They tend to be a little more advanced in life and more sensitive to a charitable pitch, more interested in responding. You could say they’re more generous,” DePriest said.

Last year, Arkansas consumers filed 1,073 complaints related to prizes, sweepstakes and lotteries, making up 11 percent of all complaints, according to the FTC. Complaints related to debt collection were the second-most prevalent with 933.

Cost of Scam Investments

Abshure said that investments in schemes can have a ripple effect on people’s families and the economy as a whole. He said the problems with those scams don’t stop with the initial investment.

“That’s money that could be put to use in other legitimate ventures that kind of drive economic growth,” Abshure said. “But the bigger issue, I think, is that if you have a senior citizen who all of a sudden loses their retirement funds, well, that’s going to be a drain somewhere else. We can’t just abandon them. Whether it’s government resources, family members’ resources, friends’ resources, that’s money that’s going to have to be replaced.”

Fraud and Other Complaints From Arkansas Consumers in 2013 = 10,193

Top 10 fraud and other complaint categories reported by Arkansas consumers

Rank Top Categories Complaints  Percentage1
1 Prizes, Sweepstakes and Lotteries 1073 11%
2 Debt Collection 933 9%
3 Imposter Scams 906 9%
4 Banks and Lenders 656 6%
5 Auto-Related Complaints 513 5%
6 Telephone and Mobile Services 479 5%
7 Shop-at-Home and Catalog Sales 366 4%
8 Television and Electronic Media 365 4%
9 Internet Services 264 3%
10 Foreign Money Offers and Counterfeit Check Scams 243 2%

1Percentages are based on the total number of Consumer Sentinel Network fraud and other complaints from Arkansas consumers (10,193)
Source: Federal Trade Commission