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...




As you read this, there are thousands of people across the U.S. who have invested in fraudulent schemes through self-directed IRAS ("SDIRAS") and don't know it.  Yep, I said they don't know it.  The reason these defrauded investors don't know they are victims is because everytime they go online and view their SDIRA account statements or they receive a  copy of their SDIRA account statement in the mail-its says that their SDIRA has either increased in value or has maintained its value since the last SDIRA account statement!  So these self-directed IRA investors, who are besmitten with short-lived investment euphoria,  blissfully view their SDIRA account value. These SDIRA investors, who don't know yet that they are victims of investment fraud,  feel sorry for all of those poor schmucks who weren't smart enough to put their money in a SDIRA so that they could invest in such  highly sought after  investments  such as  unsecured promissory notes, shell companies, illegally issued stock, nonexistent precious metals, insolvent businesses, and, my personal favorite, nonexistent real estate.

I have talked to people from all over this country who have invested in all of these "illusive" investment schemes through Fraud Promoters utilizing SDIRAS to perpetuate their schemes.  Yet these SDIRA investment fraud victims keep asking me the same question-how is it possible for the Fraudsters to get away with this?  My simple answer-because they can and they know it.  No state or federal regulatory agency monitors, regulates or even notices the investments made in SDIRAs so it is really the Wild Wild West of  Investment Tools.

It is no wonder Ponzi schemers love SDIRAS-there are not any other options to steal the retirement monies of senior citizens and other targets except through a SDIRA because regular IRAS are regulated, monitored and have strict investment guidelines for the types of investments that are permitted. Oh and did I mention that broker/dealers are required to have insurance and there are other financial protections for those investors against fraudulent losses?However, with SDIRAs the Fraudster/Cowboys are limited only by their creativity as to what they can sell as a SDIRA "investment."

If you are a SDIRA owner, run-don't walk to your phone. Call your SDIRA Custodian and ask them to tell you what the current value of your SDIRA is.  Then ask your SDIRA Custodian how they know your SDIRA has that value and what information that value is derived from.

You will be shocked at the answer from your SDIRA Custodian particularly in light of the amount of Custodial fees you pay. Do you have any idea exactly what your SDIRA Custodian does to earn their very expensive fees?  Well, we don't either.  But we do know that the SDIRA Custodian's fees are based upon the stated value of  your SDIRA.

So, wait, that means that the SDIRA Custodian receives less fees if the SDIRA account value declines.  Are you starting to see the real picture here? Exactly-the interests of the SDIRA Custodian are actually aligned with that of the Ponzi Schemers and Fraud Promoters.  As long as the SDIRA owner who has been swindled doesn't know their real SDIRA account value (which is $0), the Fraudster can continue soliciting new investors and stealing more money and the SDIRA Custodian can continue to collect their hefty fees. As I have said before- SDIRA Custodians and Fraud Promoters have a Marriage Made in Hell.


Why Self-Directed IRA Custodians Must Be Regulated

There are several reasons why self-directed IRA Custodians ("Custodians") must be regulated and changes in the laws governing self-directed IRAs ("SDIRAs") must be strengthened. First, the law needs to be clarified to give the Securities and Exchange Commision jurisdiction to investigate any claims of wrongdoing by Custodians. Second, the Federal Deposit Insurance Corporation ("FDIC") needs to be given clear jurisdiction to monitor transactions and investigate and prosecute Custodians where necessary. Although most Custodians are referred to as "trust companies" or "banks," which adds to their perceived role as a "financial institution," the FDIC has never to our knowledge initiated an enforcement action against a Custodian. The regulation of SDIRAs by the federal government is right now in limbo. It is not clear from the federal laws and regulations which, of any, federal agencies can undertake any type of enforcement action.

These loopholes have permitted Ponzi schemers like Bernie Madoff, Louis Pearlman, Ephren Taylor and others to perpetuate Ponzi schemes FOR DECADES using SDIRAs without any type of regulatory scrutiny. Billions of investment dollars have been lost by trusting investors/victims who had no clue that by using a self-directed IRA they had absolutely no protection. It is inconceivable that one could invest thousands or millions of dollars in an investment which turned out to be bogus even though the account statements received from the Custodian each month indicated that the investment was maintaining or even increasing in value!

How is an inexperienced investor supposed to uncover this kind of well- orchestrated fraud? Simply stated, they can't which is these types of fraud promoters are so successful.  It will not be possible to stop Ponzi schemes utilizing SDIRAs until the responsibilties of the Custodians are clearly identified and there is a federal agency specifically charged with the responsibility of monitoring, policing and prosecuting Custodians who fail to follow specific guidelines.