A New Era of Senior Protection

October 2006—Two former South Florida agents were sentenced to 25 years in prison for their roles in a Ponzi scheme that bilked more than 30 investors, some of whom were seniors, out of $1.2 million.  Thomas A. Masciarelli and Steven Petrarca were sent to prison for selling annuities to clients, then advising them to cash out to buy a real estate investment offered by their own company.   However, they never purchased any real estate, sent out phony statements, and kept their clients’ money. 

In Arizona, two Baptist Foundation executives were convicted for perpetrating what many observers believe is the largest case of affinity fraud in the nation.  William Crotts and Thomas Grabinsky were found guilty of defrauding 11,000 investors, including many elderly clients, in a scheme worth $590 million.  Investors were told their accounts were backed by collateral and that the accounts paid interest greater than most banks.  In reality, BFA used money from new investors to meet its commitments to earlier investors.

In a much smaller case, the Massachusetts Securities Division issued a complaint against Oppenheimer & Company for allowing one of its representatives, Stephen J. Toussaint, to steal, churn, and conduct unauthorized trades from accounts owned by an elderly Massachusetts couple.  During the period in question, regulators said Toussaint executed more than 1,600 trades in the couple’s accounts, depositing more than $350,000 in his personal bank account.

What do these cases have in common?  They demonstrate the new regulatory urgency about ridding the marketplace of senior insurance and investment fraud.  And they serve as a keen warning to advisors to tighten up their procedures and redouble their commitment to ethical business practices.

No wonder regulators are mustering their forces to protect seniors.  According to a survey released by the North American Securities Administrators Association at the Securities and Exchange Commission’s recent Senior Summit, seniors make roughly 44 percent of all investor complaints to state securities departments.  What’s more, the survey found that 31 percent of all enforcement actions taken by regulators involve senior investment fraud.

“These. . .results show that senior investment fraud is a serious ongoing problem,” said Patricia D. Struck, Wisconsin Securities Administrator and NASAA President.  “We fear it will only grow without targeted enforcement and enhanced investor education.“

If that isn’t a classic red flag, we don’t know what is. But rather than get negative or threatened, advisors should view this as an opportunity to shine.  By committing yourself to truly serving seniors’ best interests, you’ll not only avoid regulatory scrutiny, you’ll stake out a stronger competitive position in the senior marketplace.

What “Red Flags” are affecting your business? The National Ethics Bureau welcomes your input. Send your comments to: hlew@ethicscheck.com