Regulators warn seniors about 'free lunch'
MARKETING | Many 'seminars' turn out to be sales pushes
The Securities and Exchange Commission, the Financial Industry Regulatory Authority and state regulators said 50 percent of the 110 securities firms investigated made exaggerated claims at the meetings, including promises of adding $100,000 to participants' net worth; 23 percent of the firms offered inappropriate advice, and 13 percent might have committed fraud, the regulators said.
''The stakes for our investor-protection mission couldn't be higher,'' SEC Chairman Christopher Cox said. ''If we fail, millions of seniors will be at risk of falling victim to scam artists.''
Regulators are cracking down on firms that lure retirees with misleading tactics, such as overstating their employees' expertise in retirement planning.
Recently the SEC sued 26 people and companies on charges they duped retirees into investing in timeshares in Mexico. In the alleged $428 million scam, the timeshare operators used money from new clients to make purported rental payments to earlier investors.
Securities firms hold free-lunch seminars at hotels, retirement communities and golf courses, and 78 percent of seniors have been invited to one, according to Washington-based FINRA, the brokerage regulator formed through this year's merger of the NASD and the New York Stock Exchange's enforcement unit.
Fraudulent practices found in the seminar study included sale of phony investments, misrepresentation of potential returns and liquidation of customers' accounts without authorization. At half of the seminars probed, operators made misleading claims, such as telling attendees they would ''immediately'' add $100,000 to their net worth, according to the statement.
While securities firms marketed the meetings as seminars providing financial planning advice, all of those surveyed instead offered sales pitches. Participants were urged to open new accounts and purchase investments either at the meeting or during subsequent communications, the regulators said.
''It should be clear that just because you choose to deal with a well-known firm does not mean you don't need to be on guard for fraud,'' said Erik Sirri, who heads the SEC division that oversees Wall Street brokerages.
Amid the subprime-mortgage crisis, FINRA sent letters to brokerage firms this summer inquiring about sales of securities tied to home loans, Mary Schapiro, the regulator's chief executive officer, said in a recent interview.
Brokers have saddled the elderly with ''lower-quality tranches'' of debt, backed by loans that are more likely to default than higher-rated securities, she said.
''The problem is suitability,'' said Schapiro, who declined to identify the brokers FINRA has contacted. The investments are ''very volatile, very illiquid and very difficult to price. Therefore, they're hard to sell and not appropriate for many seniors.''
Bloomberg News, Sun-Times wires