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Senior Citizen Alerts
SEC Chair Uses Parents' Experience to Warn Senior
Citizens about Scams
Christopher Cox says elderly parents barraged with
sales ploys
 April
23, 2007 - Christopher Cox, Chairman of the Securities and Exchange
Commission, understands firsthand the issues seniors and their family
members face in separating investing opportunities from investing scams.
In this exclusive interview he explains how his elderly parents were
barraged with sales ploys.
And, he clarifies how the SEC fulfills one of its
missions: to ensure that all investors are protected as they plan and
save for retirement.
Bankrate, Inc. today released the interview by
Sheyna Steiner. The interview was conducted as part of Bankrate.com's
Financial Literacy Program. This month's segment focuses on Retirement.
Mr. Cox shares his thoughts on the topic, including investment scams
directed at seniors and the government's role in retirement security. A
transcript of the interview follows.
Q Senior citizens
are victimized by investment scams disproportionately to their
population size. In fact, even you had experiences with scammers in
dealing with your own parent's finances. Can you tell us about that?
A Like many
Americans, I've had to look after my parents' finances.
Before my mother died a few years ago, she was pestered by a
seemingly
endless barrage of annuity schemes and unsuitable mortgage offers.
Despite the fact that she was suffering from throat cancer and
could
barely speak, she received unsolicited sales pitches over the phone
and
even in person. Even though my father was suffering from
Alzheimer's
disease, the brokers would prey upon him as well.
The products these
brokers were pushing weren't just unsuitable, but
affirmatively harmful to anyone in my parents' circumstances. The
annuity products locked up their modest savings with huge
penalties. I
particularly remember one persistent salesman who more than a dozen
times pestered my mother to refinance her safe, low-rate 30-year
mortgage with a short-term loan that had a balloon and a teaser
rate.
That would have cost my parents their home when it came due. Even
though I personally warned him never to call her again, he
continued.
Both in Congress
and since I've become Chairman of the SEC, I've heard
hundreds of similar stories from constituents and colleagues. It is
heart breaking to see a loved one ripped off by semi-legal but
under-handed tactics. That's why, at the Commission, we're always
doing our best to protect everyone as if they're our own mother or
relative.
Our investor
education hotline is 800-732-0330, and our Web site
especially for seniors, family members, and caregivers is
www.sec.gov/investor.shtml. These are great resources where anyone
can
quickly check whether a securities broker or financial adviser is
registered with the SEC, and whether he or she is complaint-free
insofar as the regulators are concerned.
Q Why do
perpetrators of fraud seem to be increasingly targeting senior citizens
specifically?
A The reason that
protecting senior citizens from securities fraud is
becoming so critical is this: With the baby boomers reaching
retirement
age, the ranks of older Americans are beginning to swell as never
before. What's more, this is happening at the same time that
Americans
are living far longer than ever before.
More than 10,000
Americans are turning 60 every day. And that trend
will continue for the next 20 years. That's the population of one
mid-
sized town after another turning 60 every 24 hours, without
interruption, for an entire generation.
This unprecedented
large number of older Americans will live
significantly longer than their parents - and longer than they
planned.
Very few will have sufficient retirement plans to last the extra
decade
or more that they will live. Those that are blessed with good
health
will probably need to continue working, at least part time. And
many of
them will seek to actively manage their investments for higher
returns,
instead of switching into low-yield, safe investments like the
retirees
of yesteryear. That will make them prime targets for scam artists
and
securities swindlers.
Just as the
notorious Willie Sutton described the bank robber's
propensity to "go where the money is," securities fraudsters will
follow the money, too. Households led by people over 40 already own
91
percent of America's net worth. As the baby boomers continue to
age, it
will be a very short while before the vast majority of the nation's
savings are in the hands of the elderly. We can see this one coming
a
mile away.
Q In the study on
senior investor fraud released at the SEC's Seniors
Summit last year, one interesting finding was that investment scam
victims are more financially literate than non-victims. Since
financial
competency alone isn't enough to prevent seniors from falling for
scams, what do people need to know about the social influences, or
persuasive tactics, that may be used against them?
A This may reflect
the adage that "a little knowledge is a dangerous
thing." Rather obviously, seniors have experience. Fraudsters know
this, and play to it. They compliment the would-be victims on their
good sense and financial literacy. That's just one of the ways that
the
scam artist can make us too comfortable and get us to let our guard
down. Even the most informed investors need to adhere to the "it
can
happen to you" philosophy.
It isn't just
financial competence but also street smarts and a healthy
dose of skepticism that are in order to detect and avoid scams.
We've
identified more than a dozen social tactics that scam artists use
in
making their pitch.
Among the most
common:
● phantom
fixation: the con-artist dangles a sum of money, or
possibly a vacation, to tantalize the victim.
● social consensus: the scammer convinces the victim that his or
her
peers and neighbors, and other respected people in the
community,
are all making this particular investment.
● Scarcity approach: the victims are pressured to act fast,
before
it's too late.
● Reciprocity principle of social interaction: the con does a
small
favor for the victim, relying on human nature to induce the
victim
to return the favor in kind by buying the investment.
Just being aware of
these tactics, and understanding how they work, can
help not only seniors but investors of all ages to keep their money
safe.
Q As this same
study notes, even skeptical people can fall for rip-offs,
so clearly just relying on your instincts to avoid scams doesn't
always
work. What's a better way to distinguish scams from legitimate
proposals?
A The first rule is
to avoid hasty decisions. Take the time to thoroughly
research any investment or other financial opportunity. If you can
use
the Internet, it gives you a huge advantage over the scam artist.
There
is a wealth of information on government Web sites, including fraud
and
scam alerts. And a quick search on Yahoo! or Google will probably
yield
results if others have been approached with a similar proposal and
have
posted warnings to the unwary.
But there's a very
low-tech approach that also works especially well:
Discuss the offer with a trusted friend or family member - and
ideally,
a financial professional or a lawyer. The study indicated that
fraud
victims are more likely than non-victims to rely on their own
experience and knowledge instead of openly vetting the situation in
a
neutral, objective setting. The mere process of describing an
investment opportunity to a confidant can help you evaluate whether
or
not it's too good to be true.
Q How should
investors vet their financial representatives to ensure that
they are actually representing their best interests?
A The best advice we
can give investors is to ask questions - and a lot
of them. We see too many investors who might have avoided trouble
and
losses if they had asked basic questions about their financial
representatives from the start.
One way to get
started in evaluating the background of your financial
professional is to take advantage of a valuable publication that we
have posted on the SEC web site: Protect Your Money: Check Out
Brokers
and Investment Advisers. If an investor wishes, we'll also mail a
copy
of it for free.
Q What can
children or caretakers do to protect their parents or charges
from unwanted solicitations?
A A great deal
depends upon how healthy - mentally and physically - the
investor is. A senior who can get out and about, and who is
mentally
active and on top of things, needs your help as a sounding board.
Offer
to be available whenever he or she wishes to talk about finances.
That
way, if trouble looms, you'll have an early warning. If a senior is
mentally acute but physically disabled, you can be especially
helpful
as a bookkeeper and errand-runner. By involving yourself in the
details
of the investment situation, you'll be in a good position to
protect
against unwanted sales pitches and unsuitable products.
As I have learned
from protecting my own father, one of the most
difficult situations is a senior who is mentally disabled. For
example,
physicians advise encouraging an Alzheimer's patient to continue to
do
as much as he or she can. If the patient's routine in the past has
included keeping track of the family finances, then however
imperfectly, that might be allowed to continue - but only under the
discreet and watchful eye of a caregiver. Any broker who deals
directly
with a mentally disabled customer is playing with fire. As a
result,
those who do are almost certainly the last ones you want to have
contact with your own parent or loved one.
Here are some
specific ways that you can limit the number of
solicitations that a parent or other senior in your charge
receives, in
order to better protect them from potential scams:
● Register your
parent or charge with the National Do Not Call
Registry to reduce their exposure to unwanted cold calls.
Children of senior citizens can do this for them.
● Encourage your parent or charge to skip "free lunch" seminars,
even if they are pitched as educational events, unless you
have
first researched the background of the sponsor, and unless
you go
to the seminar, too.
● Maintain constant communication with your parent or charge
about
issues of significant financial consequence. This will give
you
an early-warning system when an unwanted solicitation first
occurs, and help you to insure that it doesn't continue.
Q What should the
government's role be in its citizens' retirement
security, if any?
A First and foremost,
the SEC is a law enforcement agency. We inspect,
examine, investigate, and charge people with offenses. By
patrolling
the markets for securities swindlers and scam artists, we fulfill
government's responsibility to maintain a civil society under the
rule
of law.
When it comes to
determining our law enforcement priorities, I can
think of no more valuable target than those who prey upon America's
seniors. Surely there is a special place in Hell for those who
would
rob the elderly of their life savings.
In addition to our
law enforcement function, the SEC plays a much
broader role as the investors' advocate. In this capacity, we're
committed to providing senior citizens with the information they
need
to safeguard their investments. We're also committed to ensuring
that
younger citizens can understand our markets, so that they start
putting
away money for retirement beginning at an early age, and stick to
that
plan throughout their lives. For investors of all ages, we're
providing online resources to permit comparison shopping for mutual
funds and other savings vehicles. And we're providing all of this
information in user-friendly "plain English."
Our capital markets
depend upon investors' confidence that they'll be
protected from fraud and unfair dealing. Our mission at the SEC is
to
ensure that investors are protected as they plan and save for
retirement.
Q Improving the
technology of business reporting has been a priority
during your tenure as chairman. One way you've focused on that is
by
simplifying disclosure and improving its delivery with interactive
data
in the form of XBRL (Extensible Business Reporting Language) -- an
XML
based language. How is XBRL going to impact the average investor?
A When you use the
Internet, you're taking advantage of computer
languages and codes such as HTML and XML, which operate in the
background. You don't need to be a computer maven to shop online or
to
send an email. With our emphasis on using XBRL for financial
reporting,
the SEC is working to bring the same level of interactivity and
usefulness to investor reports that consumers are already
experiencing
across the Internet. Hopefully, you'll never hear of XBRL, but
you'll
soon take advantage of its enormous power.
There's no doubt
that what we're planning will have a dramatic impact
on how ordinary investors can obtain and use financial information.
Currently, there
are essentially two choices if you wish to obtain
financial information from public companies:
● You can pore
over dense, complicated disclosure documents in
their raw "as-filed" form, searching for whatever it is you
need.
If you're lucky
enough to find what you're looking for, you'll then
need to re-type that information into a spreadsheet or other
software
in order to use it for even basic analysis or comparisons. This is
a
labor-intensive process that's burdensome when reviewing a single
company's information, and even more difficult when comparing
multiple
companies.
● Instead of the
do-it-yourself approach, you can use a third-party
data feed.
Essentially, you
pay a third party firm to scour the original
disclosure documents and re-key the data into their own proprietary
format. They sell you the results, which you can then use in your
own
computer software. Not surprisingly, very few retail customers
bother
with this expensive approach. What's more, this process is prone to
error, because of the extensive re-keyboarding of data that is
necessary. Many third parties also re-categorize the information in
a
manner that is not an exact representation of the original data
disclosed by the company.
With XBRL,
investors will have instant access to companies' disclosure
data in a format that's very user-friendly. Within seconds of
information being filed with the SEC, investors will be able to get
the
specific data they need, and organize it in almost any way they
like
for their own personalized analysis. What we're calling
"interactive
data" will make getting financial information about companies and
funds
fast, easy, and flexible.
Q You've said
before that complexity can be the enemy when it comes to
investor protection. How does increased transparency in financial
reporting and accounting procedures protect investors and prevent
fraud?
A When investors are
buried in paper, they simply can't use the
information that's being provided. They have a right not only to
all
the information they need to make financial decisions, but also to
getting it in a form they can use. If a customer orders a steak,
you
don't give her a cow and a meat cleaver. The SEC wants to be sure
investors have access to information that's clearly written,
readily
understandable, and easily searchable.
Complexity in
accounting and financial reporting has developed over
decades, in part because the real world that it seeks to depict is
growing increasingly complex. Putting things in simple terms,
therefore, is not a simple exercise. It's hard work. But the effort
is
worthwhile, because it can save hundreds of thousands of hours for
those who have to read financial disclosures and make sense of
them.
And it can also help prevent what happened in the notorious Enron
case:
cleverly disguised fraud was hidden in a thicket of dense
disclosure.
Complexity is the enemy of transparency.
Insisting on plain
English and understandable accounting will increase
the overall usefulness of financial information reported to
investors.
That's why the SEC is working with the Financial Accounting
Standards
Board, the Public Company Accounting Oversight Board, and others to
develop less complex and more workable standards and rules.
>> Link to SEC
>> More links:
http://www.sec.gov/investor.shtml
http://www.bankrate.com/
Editor's Notes:
About Bankrate, Inc.
Bankrate, Inc. (NASDAQ:RATE)
("Bankrate") owns and operates Bankrate.com, a leading Internet consumer
banking marketplace. Bankrate.com is a destination site of personal
finance channels, including banking, investing, taxes, debt management
and college finance. Bankrate is the leading aggregator of more than 300
financial products, including mortgages, credit cards, new and used auto
loans, money market accounts and CDs, checking and ATM fees, home equity
loans and online banking fees. Bankrate reviews more than 4,800
financial institutions in 575 markets in 50 states. In 2006,
Bankrate.com had nearly 53 million unique visitors. Bankrate provides
financial applications and information to a network of more than 75
partners, including Yahoo! (NASDAQ:YHOO)
, America Online (NYSE:TWX)
, The Wall Street Journal (NYSE:DJ)
and The New York Times (NYSE:NYT)
. Bankrate's information is also distributed through more than 400
national and state publications. In addition to Bankrate.com, Bankrate
also owns and operates FastFind, an internet lead aggregator and
Mortgage Market Information Services, Inc. and Interest.com, Inc., each
of which publishes mortgage guides and financial rates and information.
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