Those Over 50 Targeted in Investment Scams

By Kelly Greene, Wall Street Journal

Securities regulators and prosecutors are battling what they say is a nationwide surge in investment fraud against baby boomers.

In many cases, the victims pursued risky bets to overcome losses suffered during the financial crisis—a trend that regulators say is worsening.

State securities officials say they expect the number of enforcement actions involving investors age 50 or older to hit a record this year.

Last year, there were 1,241 criminal complaints, cease-and-desist orders and other regulatory actions launched at the state level involving investors age 50 or older, according to the North American Securities Administrators Association, a group of state regulators. That was more than double the 506 cases in 2009.

There are about 77 million baby boomers in the U.S., or 25% of the nation's population, and the oldest began turning 65 this year. Many of their retirement portfolios were ravaged by the financial crisis, erasing billions of dollars in assets.

Despite a steep rebound since March 2009, the Dow Jones Industrial Average is down 15% from its peak in October 2007, causing many baby boomers on the cusp of retirement to stretch for higher returns. That makes those investors especially vulnerable to fraud, securities regulators and prosecutors contend.

Exotic unregistered securities such as promissory notes, private placements and investment contracts have emerged as the main vehicles for fraud involving older investors. Of the enforcements in 2010 involving investors age 50 or older, cases involving unregistered securities outnumbered those related to ordinary stocks and bonds by a ratio of five to one, according to the securities administrators' association.

Older investors often buy such securities through self-directed individual retirement accounts, which allow people to plow their money into investments beyond traditional stocks, bonds and mutual funds, such as real estate, gold and oil wells.

The number of Ponzi schemes also has surged, regulators and prosecutors say, as has real-estate fraud and the number of cases in which investments are pitched at "free-lunch" seminars run by investment promoters.

The increase comes amid widespread efforts to deter wrongdoing. Since 2007, at least 19 states have toughened their laws, usually by increasing the penalties for financial crimes or securities violations against people who are at least 60 years old.

The number of enforcement actions at the state level vastly underestimates the extent of the fraud, regulators say.

About 14,000 investigations were undertaken by state regulators in 2009 and 2010, according to the securities association, many of which could take years to complete.