Victims of Elder Investment Fraud – A Growing Problem


Investment scams targeting senior citizens continue to proliferate in Georgia and across the country. In fact, the Atlanta Journal Constitution recently published an article dealing with financial fraud perpetrated against seniors.  The article (“Financial fraud scams target Georgia seniors”) focused on an 81 year-old lady who was the victim of a ponzi scheme.  A ponzi scheme is a form of fraud in which the perpetrator typically promises to invest the victims’ money at a high rate of return, but actually misappropriates the money, keeping the victims in the dark by paying them money taken from new investor-victims.  When the supply of new investor-victims dries up, so do the payments and the scheme falls apart.  The victims’ money is usually not recovered.

As in the Bernard Madoff ponzi scheme, the victims may be very successful and affluent people.  Many of them are seniors.  According to federal prosecutor Sally Yates, who was quoted in the story, fraudsters view seniors as easy marks.  They are easy marks for a number of reasons, which may include a well-founded fear of running out of money, mental decline and loneliness.  Many fraudsters are exceptionally good liars and experts at preying on their victims’ fear, greed and trust.

Access to victims is sometimes obtained through free lunch or dinner seminars.  Often victims are approached and cultivated in a way that authorities refer to as affinity fraud – using a common bond such as church membership to gain the victim’s trust.

In addition to perpetrators of outright frauds like ponzi schemes, seniors are being targeted by sellers of high-commission alternative investments, such as nontraded real estate investment trusts and limited partnerships.  Such investments are lucrative for the seller but often not the investor. More information about this problem is available at Elder Financial Abuse.

Crooked financial advisers sometimes work together with a trust lawyer and/or accountant, who sell victims trusts or other services they may not need and refer them to financial advisers like the one who scammed the elderly victim in the article.

The article lists a number of ways that seniors could avoid fraud, such as asking the right questions, researching the would-be adviser, not being afraid to complain, and so on.  While that is fine as far as it goes, it does not go far enough. Part of the problem is the mismatch between predator and prey – the “easy mark” problem.  That problem can best be solved by making a blanket rule ahead of time to only do business with a few trustworthy firms and saying “no” or just hanging up on people who offer unsolicited investment advice.

While we do not recommend investment advisers or provide investment advice, as a general rule, seniors can consider mutual fund investments sold by Vanguard, USAA, Fidelity, for example, as a kind of fraud-free zone.  The investments offered by these institutions may or may not do well, but at least investors are unlikely to fall victim to financial fraud by doing business with them.  You do not need to be a do-it-yourself investor, as these firms offer various levels of advice up to and including managed accounts.

As the article shows, investors, especially seniors, need to be extremely careful about who has custody of their money.  While there is nothing that is absolute, as a general rule, scammers are less likely to work for reputable firms.

Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.