SEC Details Efforts To Protect Seniors From Investment Fraud

by James J. Eccleston, Esq.

he Chairman for the Securities and Exchange Commission (SEC) is making protection of senior investors one of his "highest priorities." Recently, Chairman Christopher Cox spoke to the United States Senate Special Committee on Aging. Let's review how the SEC plans to protect seniors from investment fraud.

Preliminarily, Chairman Cox shared some interesting statistics. First, in 2006 there were more than 37 million Americans age 65 or older, or 12% of the total population. Second, in the 21st Century, Americans will live significantly longer, and importantly, longer than most of them planned for retirement. Fully one-third of seniors believe that they have not saved sufficiently to meet their basic living expenses, and those with sufficient funds may be too eager to risk those funds to achieve higher returns. As a consequence, Chairman Cox believes that seniors "prime targets for scam artists and securities swindlers."

The SEC and securities regulators are taking a "multifaceted approach" to protect seniors. This approach ranges from "investor education, to targeted examinations, to aggressive enforcement efforts."

One such effort is the second annual Seniors Summit. The 2006 Seniors Summit convened the SEC, state securities regulators the Financial Industry Regulatory Authority (FINRA) as well as AARP. Working together, the group identified a number of initiatives, and also unveiled a new study that explored the reasons why seniors are victimized by fraud. The 2007 Seniors Summit, according to Chairman Cox, "will gather more of the nation's resources to protect seniors." One event, open to the public, will be a "lunch and learn" program focused on the persuasion tactics that fraudsters most often use in victimizing seniors.

Another effort revolves around investor education. Chairman Cox spoke about the emphasis that the SEC has placed on investor education initiatives directed towards seniors, partnering with others to sponsor over 40 events nationwide attended by more than 50,000 seniors. Another valuable resource is the SEC's website, which devotes an entire section to senior investors. Finally, investors can obtain a free copy of a 108-page investment fraud guide through the SEC's Office of Investor Education.

Third, the SEC has targeted examinations of securities firms. Joined by other securities regulators, the SEC for example targeted "free lunch" sales seminars. Chairman Cox believes that these seminars pose "serious risks to senior investors."

Fourth, the SEC has aggressively enforced the securities laws. Chairman Cox cites the fact that over the last two years the SEC has brought at least 40 enforcement actions involving fraud on seniors. These actions largely were targeted at Ponzi schemes that separated senior investors from their retirement nest eggs, with promises of safety yet significant investment returns.

Fifth and finally, Chairman Cox emphasized that securities regulators need to identify new areas of focus for protecting seniors. He identified several worth considering. For example, the SEC is considering whether seniors - and other investors - are confused by the "different regulatory structures applicable to" broker-dealers and investment advisers, and "whether they continue to make sense in light of how the securities business has evolved." Similarly, Chairman Cox recognized that seniors are confused by the use of "senior" professional designations by brokers, investment advisers and others, and the SEC and other regulators are considering what they can do to ease that confusion. Helpful information regarding those designations may be found at www.sec.gov/investor/pubs/senior-profdes.htm.

Overall, one should applaud the efforts of the SEC and other securities regulators. Their efforts to protect seniors from investment fraud are both noble and desperately needed.

_______________________________________________________________________
James Eccleston, an attorney specializing in adviser and broker-dealer issues, is a partner with Shaheen, Novoselsky, Staat, Filipowski & Eccleston in Chicago.