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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Opening Statement at the Seniors Summit


Chairman Christopher Cox

U.S. Securities and Exchange Commission

Washington, D.C.
July 17, 2006

Good morning, and welcome to the SEC's first ever Seniors Summit.

Before we get started, I want to give a rousing welcome to our new SEC Commissioner Kathleen Casey, who was just sworn in this morning. Kathy comes to us from the Senate Committee on Banking, Housing and Urban Affairs, and their loss is our gain. As a former Member of Congress, I know full well that, though the Members get the credit for writing legislation, the staff are the real heroes. As the Committee's Staff Director for the past three and a half years, and as a member of the staff of that Committee for the past 13 years, Kathy was responsible for many important pieces of legislation that have had a deep impact on our nation's economic health. That is why the Senate last week passed a resolution expressing its deepest gratitude and most sincere respect for Kathy, for her service to our country. I couldn't agree more. Kathy, welcome to the Commission. Your qualities will serve the nation well in your new capacity.

Your first public event is an important one. I want to give a special greeting to representatives and leaders of NASAA, NASD, NYSE Regulation, AARP and the California Department of Corporations, all of whom are here with us today.

We often work together, but we're not all often under the same roof - and the reason we are today is special. We're called together for an important purpose: to protect our nation's senior citizens from scammers who would steal the money that took them a lifetime to save. We are committed to being cooperative in our approach, creative in our thinking, and productive in our results.

Protecting seniors from investment scams is one of the most important issues of our time. The numbers give us an idea of the magnitude of this issue.

This year, the baby boomers start turning 60. In fact, President Bush led the way last week - and he's just one among the largest cohort of our national demographic profile. The birthdays this year - all these men and women turning 60 - are just the beginning of a veritable demographic floodtide. For the next two decades, 75 million more people will turn 60.

That's 10,000 people every 24 hours. Imagine a medium-sized town where every day all the residents turn 60, town after town, for 20 years. This is what the graying of the Baby Boom generation means. The next 20 years will witness the Retirement Boom.

As this proceeds inexorably, all the evidence points to the baby boomers taking the bulk of American wealth with them into old age. Households led by people over 40 already own 91% of America's net worth. And the baby boomers will in all likelihood heed Dylan Thomas's famous words and will "not go gentle into that good night." Instead, because they'll live longer - and, in the main, healthier - than their parents, they'll likely work longer, and remain active and aggressive investors even longer still.

Chances are that they will remain invested in equities and not switch to fixed income to the degree that people over 60 used to. One reason for this is that Americans are a lot less prepared for the financial contingencies of old age than they realize. For example, while we are all living longer, most people's retirement plans haven't taken this into account. When my dad was born life expectancy was 49 years. Today it is inching closer and closer to 80. And fully half of the babies born this year are expected to live past 100.

All these trends - a huge number of people suddenly turning older, the prospects of longer lives but fewer guarantees of financial security, and at the same time a substantial percentage of our national wealth in the hands of seniors - have the makings of a perfect storm. Fraudsters will go after seniors because, following the Willie Sutton principle, "that's where the money is."

And seniors won't be the conservative investors they used to be - so they'll be more vulnerable than ever. The result could be an avalanche of investment fraud cases that could injure millions of seniors who are vulnerable, not just because of the onset of years, but more importantly because, once they lose their savings, they'll have no second chance.

When that happens, tragedy strikes. The numbers alone do not tell the whole story. On a personal level, this kind of fraud robs people of their dreams and destroys lives. Frauds of this kind would erode the very trust on which investing depends, and undermine investor confidence in markets as a whole.

The SEC staff receives tens of thousands of calls a year from people who have been scammed, or who have been sold investments they don't understand. These are bitter personal tragedies. Let me take the time to recognize the work of our Office of Investor Education and Assistance for their professionalism and compassion in dealing with these cases.

As regulators and law enforcement agencies charged with looking after the interests of investors, businesses, and the elderly, it is up to us to fight to prevent these personal and systemic catastrophes.

We are committed to vigorous enforcement as a means of protecting our seniors. Many of our organizations are already working together on a series of on-site compliance examinations of firms that sponsor "free lunch" seminars that are often targeted at seniors. Our concern is that these events are being used by unscrupulous individuals to sell investment products unsuitable to seniors. Our initial efforts have proved that, unfortunately, we were right to launch these examinations. So we are expanding the program.

Just last week, the SEC's New York office filed an emergency enforcement action to halt a fraudulent real estate investment scheme that bilked senior citizens and retirees out of millions of dollars since 1996.

And later today, our Denver office will file suit against several California con artists who raised $16 million in a Ponzi scheme that promised investors returns of up to 75 percent. Many of the victims were sick and elderly investors, several of whom lost their entire life savings.

Today's summit is an important step in this process of collaboration among government and law enforcement at all levels.

One important contribution, which will no doubt be the subject of much attention today, is the NASD's Investor Education Foundation's Fraud Study. All of the study's findings caught my attention. Some were intuitive - such as, for example, the discovery that con artists vary their pitches in order to fit their intended victims' profiles. The finding that fraud victims tend to be more optimistic also makes sense.

Other findings may appear more counterintuitive to people not familiar with investor fraud, such as the fact that fraud victims tend on average to be more informed about investing than non-fraud victims. This may go back to the old saying that "a little knowledge can be a dangerous thing."

These findings should have an impact on how we approach our jobs. As the study says, "while financial literacy programs are necessary, they are probably not sufficient by themselves to prevent fraud."

To devise the proper response we have an impressive array of talent here today.

From the Commission we are fortunate to have the participation of all our Commissioners, including our newest addition. We will also have Linda Thomsen, Director of the Division of Enforcement, and Lori Richards, Director of the Office of Compliance Inspections and Examinations.

We also have eminent speakers from outside the Commission. From the North American Securities Administrators Association we have its national president, Patty Struck. Patty, the chief securities regulator in Wisconsin, has been president of NASAA officially since September. She has had top positions in NASAA since 1998. NASAA, incidentally, is the oldest international organization looking after investors' interests. It brings together regulators from the 50 states, Canada and Mexico. Patty has used this powerful tribune to speak about investor protection and education for several years now.

From the NASD we have Vice Chairman Mary Schapiro. Ms. Schapiro joined NASD in 1996, and before that she was Chairman of the CFTC. She was, also, a Commissioner and acting Chairman here at the SEC.

Chris Hansen is AARP's Group Executive Officer for State and National Initiatives. His responsibilities include government relations, advocacy, management of AARP offices in every state, public outreach on key programs, and volunteer management and support. Prior to that, Chris had a long career with Boeing.

Rick Ketchum is Chief Executive Officer of NYSE Regulation, Inc. He is a member of the NYSE Regulation Board of Directors. Rick has served as the Chief Regulatory Officer of the New York Stock Exchange since March 8, 2004. He is also an SEC alum, having been director of the Division of Market Regulation for eight years.

We're also fortunate to have with us Professor Anthony Pratkanis, who teaches psychology at UC Santa Cruz. Prof. Pratkanis has made research into persuasion, influence, and fraud his life's work. Prof. Pratkanis has testified to the U.S. Senate's Special Committee on Aging about what can be done to protect our seniors. He currently works with the AARP and government agencies on strategies to prevent fraud.

Also here is Doug Shadel, Washington State's AARP director. Doug's experience as a former fraud investigator and special assistant attorney general in Washington is directly relevant to our endeavor today. He is a leading national expert on fraud on seniors and has co-authored three books on fraud.

Anthony Lewis has been deputy commissioner for the Securities Regulation Division and acting Chief Deputy Commissioner for the California Department of Corporations since June 2005. In this position, he assists in the day-to-day operations of the department. He has previous experience fighting elderly fraud, having served as a Supervising Deputy Attorney General for the State of California Bureau of Medi-Cal Fraud and Elder Abuse.

And rounding out the talent pool we have Preston DuFauchard, who was just appointed by Governor Schwarzenegger as Commissioner of the California Department of Corporations. It's very nice of Commissioner DuFauchard to make it here from Sacramento.

Our format today will comprise four presentations, running until 11:15, and from then until 12 noon, we will throw the floor open to a panel discussion among all the participants.

  • Our first discussion group, comprised of Patty, Chris, and Mary, will give a broad view of the current landscape.
  • Our second group will look at the senior investor fraud study, and will be made up of Professor Pratkanis and Doug Shadel.
  • Our third presentation, on seniors against investment fraud, will be given by Tony Lewis.
  • Our last presentation, by Linda Thomsen and Lori Richards, will be an enforcement and examination update.

Now we'll begin our free-ranging discussion.


Modified: 07/17/2006