Remarks at the SEC Roundtable on Combating Elder Investor Fraud
Oct. 3, 2019
Thank you, and good afternoon. I would like to start by thanking all the participants on the panels for their time and attention today to the important subject of protecting the financial security of elder investors. I also want to thank our Office of Investor Education and Advocacy (OIEA), the Retail Strategy Task Force, the Division of Trading & Markets, and all of the SEC staff who worked to make this event possible. And finally, I want to thank Commissioner Roisman for hosting this event, and his counsel Nick Losurdo. I look forward to working with Commissioner Roisman, Chairman Clayton, and the rest of my colleagues on the Commission as we give careful thought to the ideas discussed today and continue to work toward protecting senior investors.
Before I proceed, I’ll offer the standard disclaimer that these are my personal views and not necessarily those of the Commission or the Commission staff.
In fact, some of the views I want to share with you today are very personal as they relate to the topic of the last panel—fraud directed at seniors. Having worked in Enforcement, I’ve personally seen the devastating effects of fraud targeting seniors. One experience that I can never forget is a case that I brought against Ponzi schemers specifically targeting older investors after the financial crisis. The perpetrators of this fraud spun a story that if the victims emptied their 401ks, maxed out their credit cards, and took out second mortgages on their homes, they could recover the losses that the financial crisis had caused in their retirement accounts. These unscrupulous individuals promised returns in the range of “hundreds of percent” and managed to essentially steal tens of millions of dollars from ordinary, mostly older, investors.
I spoke to many retirees who were taken in by the scheme. In particular, I remember speaking at length to one couple, a retired teacher and insurance agent, who, in their 70s, had to take jobs at a fast food restaurant just to keep a roof over their heads. They were in tears as they spoke to me, and I had to tell them they likely would not get their money back. Almost overnight, their retirement, security, and peace of mind were gone. We sued and won, but as is often the case, most of the money had disappeared, and it was too late.
Every day our Division of Enforcement, as well as our colleagues at other regulators and law enforcement agencies, encounter these kinds of heartbreaking stories. Enforcement is crucial for accountability and deterrence, and to get money back into the hands of investors whenever possible. But, as Chairman Clayton noted this morning, Enforcement is not a full answer. We need to be proactive and stop this abuse before the damage is done.
It is heartening to see industry trade associations such as SIFMA creating resources for member firms to increase knowledge and awareness of the issues facing seniors.  Focused training and education can lead to improved results at identifying potential fraud.
I also appreciate industry efforts to incorporate training and education around developments like FINRA’s trusted contact and temporary hold rules, and increasing adoption of NASAA’s Model Act to Protect Vulnerable Adults from Financial Exploitation. These measures by industry, FINRA, and many states represent important steps, as they alert and empower industry professionals to take action in the face of apparent exploitation of senior investors.
We heard today that elder investors are uniquely vulnerable to these schemes due to a complicated mix of physical, mental, and socio-economic factors. As we come together to examine this challenge and discuss strategies for mitigating the risks that seniors face, I think it’s important that we question some of our traditional assumptions and approaches to investor protection and regulation.
For instance, we should recognize that predatory behavior includes not just Ponzi schemes and boiler rooms, but can also include less obvious misconduct, such as the sale to older investors of various types of more complex products, which may subject seniors to poorly disclosed fees and high risks. We rely heavily on disclosure for investor protection. But disclosure, on its own, is often insufficient for older investors potentially suffering from diminished capacity, and experiencing shrinking communities of support and relationships of trust.
In addition, we should consider the implications of an important factor that leads to seniors being targets of fraud: their wealth. As we know, there is an increasing amount of wealth concentrated in older households, and seniors are more likely to have a high net worth. In our securities regime, we make certain assumptions about the relationship between wealth and financial sophistication. Those assumptions can be mistaken, particularly when applied to older investors. For that reason, we should be cautious if in the future we consider changes to our accredited investor definition.
The Commission recently issued a Concept Release on the Harmonization of Securities Offering Exemptions which explores, among other topics, the criteria for qualifying as an accredited investor. For individual investors, that criteria is based on income and net worth. Those who qualify as accredited investors may participate in some private offerings not available to other types of investors based on the idea that they are better able to “fend for themselves” in a less regulated private market.
As I reviewed the comment file for the concept release, I came across a study finding that older investors may often meet the accredited investor definition without having the financial sophistication that we typically impute to accredited investors. That’s a troubling finding, and I hope that any rulemaking that we consider in this space takes into account the unique risks to senior investors.
As everyone here is aware, there is no quick fix for this problem. That’s why events like today’s roundtable are so important. It’s clear that coordination is key: coordination within agencies, such as the collaborative efforts of the Retail Strategy Task Force and OIEA here at the SEC, coordination among regulators, coordination between public and private sectors, and events like this that bring us all together to share ideas and best practices.
It’s an all-hands-on-deck effort, and I sincerely thank each of you for pitching in to help us as we consider how best to protect some of our most vulnerable investors.
 SIFMA, Senior Investor Protection, https://www.sifma.org/explore-issues/senior-investors/.
 See FINRA Rule 4512 (permitting member firms to place temporary holds on disbursements of funds or securities from the accounts of certain customers where there is a reasonable belief of financial exploitation of those customers) and FINRA Rule 2165 (requiring members to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account) (both described in more detail in FINRA Regulatory Notice 17-11: Financial Exploitation of Seniors (March 2017), available at https://www.finra.org/sites/default/files/Regulatory-Notice-17-11.pdf).
 Information on NASAA’s Model Act and a list of the states that have enacted legislation or regulations based on the Model Act are available at https://www.nasaa.org/industry-resources/senior-issues/model-act-to-protect-vulnerable-adults-from-financial-exploitation/.
 See Stephen Deane, Elder Financial Exploitation: Why it is a concern, what regulators are doing about it, and looking ahead, publication of the SEC Office of the Investor Advocate (June 2018), at 5 (citing research showing that Americans over the age of 50 account for 77 percent of financial assets in the United States, and that, as of 2013, households headed by someone aged 65 or older had a median net worth of $202,950), available at https://www.sec.gov/files/elder-financial-exploitation.pdf.
 See Concept Release on Harmonization of Securities Offering Exemptions, Release No. 33-10649 (June 18, 2019), available at https://www.sec.gov/rules/concept/2019/33-10649.pdf
 See Letter dated September 22, 2019 from Michael S. Finke, Ph.D. (citing and attaching research showing that “older households are at risk of meeting the accredited investor definition without having the sophistication needed to avoid high agency costs in a largely unregulated securities market”), available at /comments/s7-08-19/s70819-6168200-192389.htm.