Federal and state regulators are investigating a widespread practice of brokers targeting seniors at “free lunch” seminars. Regulators warn that such seminars are among the top investment scams for 2007. Seniors and persons who may or may not be contemplating retirement are lured by complimentary meals, often at upscale hotels, restaurants, golf courses and retirement communities, and promised “educational” information with no sales pitches. All too often, however, the brokers use the occasion to pitch unsuitable investments and retirement strategies, including cashing in their pensions, reinvesting the proceeds, retiring early, and living on the substitute paycheck from their investments that never materializes.
This is “a problem that can have absolutely devastating consequences for a large proportion of our population,” said Mary Shapiro, Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA), and Chairman of the FINRA Investor Education Foundation, in an interview.
In June 2007, FINRA ordered Citigroup Global Markets, Inc. to pay approximately $15.2 million in fines and restitution for misleading more than 200 BellSouth employees who attended retirement seminars and meetings. Page Perry attorney James A. Nofi spoke on the prevalence of these practices at the Oppenheimer Second Annual Central American and Caribbean conference held in Atlanta in early September 2007. Mr. Nofi appeared as part of a legal panel discussion of various scams and schemes perpetrated on customers.
Page Perry has successfully represented and is currently representing victims of fraudulent “free lunch” seminars. In a number of recent cases, Page Perry successfully represented employees of a large telecommunications company and other seminar attendees. The brokers who organized the seminars persuaded the attendees to cash out their defined-benefit (traditional) pension and 401(k) accounts, and invest the proceeds with the brokers. The brokers invested large portions of the attendees’ money in overly expensive variable annuities and in non-income producing, highly speculative mutual funds, which lost value. The brokers falsely assured the attendees that they could make sizeable withdrawals from their nest eggs without compromising their financial security. The brokers recommended withdrawal rates as high as 14% per year to replace their paychecks. Unfortunately, with the high withdrawal rates and poor investment performance, their savings dwindled and they could not meet their living expenses.
Currently, Page Perry is representing a number of investors who were persuaded to invest their retirement savings in variable universal life (“VUL”) insurance and variable annuity policies. Again, the problems started when investors were “pitched” at a “free lunch” seminar. In many cases, the attendees were persuaded to cash in existing policies and use the proceeds to purchase new policies. The broker falsely told the attendees that they could withdraw their money at any time, when, in fact, such policies carry steep “surrender charges” that prevent full withdrawals. The broker also falsely assured attendees that the initial premiums would cover the cost of annual premiums for the VUL policies that the victims could not afford to pay.
Although regulators say they are “cracking down” on these problems, the efficacy of the promised crackdown remains to be seen. SEC Chairman Christopher Cox summed it up: “If we fail, millions of more seniors will be at risk of falling victim to scam artists.”