FINANCIAL EXPLOITATION OF THE ELDERLY BY PONZI SCHEMERS

I am going to disagree, somewhat, with articles analyzing financial exploitation of the elderly, as it relates to frauds perpetrated by Ponzi Schemers.  I have noticed a pattern of conduct by the Fraudsters in these cases and it differs somewhat from the characteristics normally attributed to persons engaged in financial exploitation and abuse of the elderly. First, senior abuse in this country is a $2.9 billion "industry."  I call it an "industry" because it is the method through which thousands of people earn a living each year.  I am not being facetious.  There are thousands of people in the U.S.  right now who are making a living by preying on the elderly for years or even decades through investment frauds and Ponzi schemes. These individuals do not fit the typical description of "financial elder abusers" depicted by regulators and other advocates of the elderly.

Second, in my experience, many investment fraud promoters targeting the elderly are sociopathic individuals who carefully select their targets not because of the weakness or mental incapacity of the elder target but rather just the opposite.  Many elderly victims are targeted by the Fraudster because they had large retirement accounts, were still very active and engaged in making decisions concerning their financial investments, and the targets shared some "affinity," meaning a like attribute or characteristic, with the Fraudster.

Many Ponzi Schemers are focused on elders or senior citizens who have large sums of money sitting idly in the stock market or other investments and are unhappy with their returns or even losses on their investments.  These elders are financially savvy people who understand investment risks and losses.  But these elders are unaware, as are most other investors regardless of age, that certain investment vehicles facilitate investment fraud and provide no protection to the unsuspecting investor and that they are a common target for Fraud Promoters.

Third, elders who are financially exploited by Ponzi Schemers and Fraud Promoters are often attracted by the Fraudster's claims of above average returns on investments, extraordinary personal investment success, limited possibility of participation in the investment scheme to entice interest, and "guaranteed" investment income. The Fraud Promoter or Ponzi Schemer may also be of the same race, religion, or cultural background as their elder targets which causes the elder to trust the Fraud Promoter and turn over total control of their investment account to them.  We all feel more comfortable with people we view as "like" us and Ponzi Schemers are acutely aware of that.

So these elder victims of financial exploitation are not the typical senior citizen victims of undue influence due to diminished capacity or "free lunch" elder exploitations.  By gaining the trust and confidence of the elder target, the Fraud Promoter is able to gain total control of the elder's investment account.

Those of you who read my Blog regularly have probably already read one too many articles on the use of self-directed IRAs by Ponzi Schemers to perpetuate investment frauds so I will leave that subject for another day.  But suffice it to say that self-directed IRAs are used routinely by Ponzi Schemers to swindle the elderly just like other investors because use of the self-directed IRA makes perpetuating the fraud much easier.

The point of this article is simple-don't assume if your elderly parent, relative or friend is still active and manages their financial affairs that they cannot become a target and eventual victim of Fraudsters.  I have talked to hundreds of elderly investment fraud victims who were fully capable of managing their own affairs-but still got swindled.  Just a word to the wise...

 

 

SHOULD SELF-DIRECTED IRAS BE REGULATED LIKE OTHER INVESTMENTS?

The answer, of course, from a lawyer representing hundreds of victims of Ponzi schemes orchestrated through Self-Directed IRAS ("SDIRAS") is a resounding "Yes!"  The current lack of regulation of SDIRAS is clearly NOT working.  Although there are stories of untold wealth being made with SDIRAS, there are also more stories of fraud, theft and Ponzi schemes that are executed exclusively through the use of SDIRAS.  There is something inherently wrong with an investment vehicle that is so wildly popular with fraudsters preying upon innocent investors that the SEC and others need to issue alerts about it.  What about the Ponzi schemers who are targeting the elderly with the promise of guaranteed returns if they will only transfer their entire life savings to a SDIRA which can then be wired to the Ponzi schemers and never seen again?  Why are we permitting these kind of financial elder abuse schemes to continue to occur unabated?

I really do not want to know how many cases of  financial elder abuse are being consummated daily in this country through the use of SDIRAS. The only way to stop this ever-increasing fraud being perpetrated through SDIRAS is to make SDIRAS less attractive as an investment tool to swindle an innocent victim.  It is way too easy right now for creative fraud promoters to perpetuate multi-million dollar frauds with SDIRAS.

Here are a few simple suggestions to curb SDIRA fraud:

1. Require the Custodians of SDIRAS to actually verify that the investment" is  being offered by a licensed and registered financial advisor or investment broker (for you lawyers-read that "insured" investment advisors).

2. Require the Custodians of SDIRAS to actually verify "ownership" of title to the investments being held within the SDIRA (which they are supposed to do already) regardless of whether it is stocks, real estate, a business, etc.  Let's have a little scrutiny on what the investor is purchasing. After the transaction is complete, what exactly will be held by the SDIRA?

3. Let's require SDIRA Custodians to actually do something for their money. Let's require Custodians to audit each SDIRA at least semi-annually and provide the SDIRA owner with a written valuation of the holdings in their SDIRA account.  Sunshine is, after all, the best disinfectant!

Just these simple changes would go along way towards curbing fraud through SDIRA investment solicitations.  Would love to hear your suggestions as well.  You may email me at clerman@lermfirm.com.