Watch Out for Scams Targeting Seniors

EDITOR'S NOTE: This article was originally published in the October 2009 issue of Kiplinger's Retirement Report. To subscribe, click here.

In 2000, Liz Mulligan took a job as a caregiver for an elderly man. She had recently retired from a position that involved auditing. So it didn’t take her long to figure out that her client’s bookkeeper had stolen $219,000 from him. The bookkeeper eventually went to prison.

“That got me interested in helping seniors who’ve been financially exploited,” says Mulligan, 64, who lives in Seattle. “I saw the disastrous effects.”

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Mulligan started a business that helps victims organize their financial records and negotiate with creditors and banks. She also volunteers as a “fraud fighter” for a program created by the AARP Foundation and the Washington attorney general’s office.

As a fraud fighter, Mulligan calls seniors around the U.S. to advise them how to dodge scam artists. And when she calls, many offer horror stories about how they have fallen for a con.

The number of horror stories is rising. Across the U.S., law-enforcement officials are noting an uptick in senior-directed scams. Anxious to replenish their recession-embattled retirement savings, many retirees are falling for the tantalizing promises of smooth-talking predators.

“Seniors are scared that they don’t have enough money for medical costs, or that their home isn’t worth as much as it was,” says Jean Mathisen, director of AARP’s Fraud Fighter Call Center in Seattle, one of nine such centers. “People are feeling such desperation that they sometimes suspend common sense.”

The scams directed toward seniors run the gamut. Many con artists promise outsize returns on IRA investment products. Telemarketers hawk anti-aging products that are never delivered or are worthless.

Con artists are nothing if not creative. Take what’s known as the Grandparent Scam. State attorneys general warn that a caller may say, “It’s your favorite grandson.” The senior may respond with something like, “Is this Joe?” Then “Joe” claims he’s been in an accident or stranded and persuades the senior to wire money.

As much as you want to bolster your sagging retirement savings, remember the adage: If it’s too good to be true, it probably is. Here are some of the con artists’ favorite senior-directed scams.

Fabulous offers. A con artist will call or send a letter or e-mail alerting you that you’ve won a big prize or that you can buy a product, perhaps prescription drugs, at a great price.

With sweepstakes schemes, for instance, a scammer will tell a senior that to claim the prize he or she must first pay a fee. However, it’s illegal for a company to require someone to pay to claim a prize. You won’t get your money back, and you certainly won’t see any sweepstakes winnings. “Whatever money you’ve sent by wire transfer is impossible to recover,” says Kristin Alexander, spokesperson for the Washington state attorney general’s office.

A 66-year-old Illinois man learned that the hard way. In late 2008, a man called to say that the retiree won $3.5 million. The caller told the retiree to wire $200 to cover a delivery fee, and called later to say there was a mix-up with the wire transfer and that he must send $150 more. “He convinced me that I had won it,” says the victim, who asked that his name not be used. “I was gullible.”

Also, watch out for postcards, e-mails or certificates promising bargain or free cruises or vacations. You’ll know it’s a scam if the promoter tells you that the deal is a time-limited offer and pressures you to provide a credit-card number, certified check or money order right away. The entire trip could be bogus. Or you’ll be hit with lots of extra fees after you’ve sent your deposit.

Phony-bank fraud. Watch out for callers who claim to be from your bank or credit-card company. They’ll tell you that they’ve noticed suspicious activity on your credit card and want to check it with you. You’ll know the call is not legitimate if the caller asks for your credit-card or Social Security number to confirm he’s talking to the right person.

Be aware of e-mails from what purports to be a trusted institution that asks for your Social Security number or account numbers. Phony Bank of America and Citibank messages are common. One prevalent scheme is an e-mail promising you a tax refund from the IRS -- except the IRS never e-mails taxpayers.

Scammers usually adapt their cons to the changing economic environment. Law enforcers warn of a hoax based on the rise in bank failures. An e-mail will claim to be a financial institution that has recently taken over the consumer’s bank or mortgage and ask for an update on account information.

If a large home renovation socked you with a bigger mortgage than you can afford comfortably, watch out for companies that offer to negotiate a payment plan or loan modification. The fraudster may claim to be affiliated with your lender. You may be told to pay upfront fees. If you’re having trouble making your payments, call your lender or find a housing counselor approved by the U.S. Department of Housing and Urban Development at www.hud.gov.

Investment schemes. If you think you can tell a con artist from a legitimate adviser, consider this finding from a major study: Investment-fraud victims are more financially literate than non-victims. The hook: a promise of high returns with little risk. “When people set up a scam to target seniors, there’s always going to be an emphasis on safety,” says Michael Byrne, chief counsel with the Pennsylvania Securities Commission.

Typical is a case involving the FBI, Securities and Exchange Commission, and securities regulators in several states. Four ringleaders and their 95 sales agents reached nearly 3,000 victims by phone, on the Internet and at sales seminars, according to the U.S. Attorney’s Office in the southern district of California.

The salespeople told investors, many of them seniors, that the investment was a “secret” and “invitation only” bank program that was risk-free and would generate monthly returns of as much as 50%. In late 2008 and early 2009, the four men were sentenced to prison for running a Ponzi scheme.

Even knowing the adviser is no guarantee you won’t be taken. In 1994, Ruth and Len Mitchell handed over $100,000 to an accountant who lived on the same street in Beaver Falls, Pa. The neighbor told the couple that he could invest the money in real estate bonds through a company that he ran. He promised the couple 8% returns. Ruth says she received what the accountant called interest payments. But he never actually invested the money.

Ruth, 68, and Len, 85, both retirees, learned of the theft in 2005 after the IRS uncovered that the accountant was running a Ponzi scheme. Many other victims, including business owners and doctors, were the accountant’s neighbors or friends, she says. He’s now in prison. “You trust people, and that’s what you should not do,” says Ruth, who now lives near Phoenix.

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Seniors are commonly targeted during free luncheon seminars. The goal of seminar leaders is to recruit new investors and earn commissions. “We've heard about people being talked into putting their savings into products that are fraudulent or into products that are simply wrong for them,” says Andres Castillo, who oversees AARP’s Free Lunch Monitor program.

The AARP program sends volunteers to seminars. Monitors who hear anything questionable -- perhaps promises of low risks -- notify AARP, which alerts the North American Securities Administrators Association. To become a monitor, visit www.aarp.org.

Don't Become a Victim of Fraud

The first step, says Alabama Securities Commission Director Joseph Borg, is to remember, “You can’t have high returns and no risk.” The easiest way to protect against fraud is to ignore the pitches. Hang up on telemarketers, reject invitations to free-lunch seminars, and toss out mail with promises of surefire investments and cheap travel. Politely shut the door on solicitors.

Do not give any cold caller or visitor money, whether it’s wiring money or sending money orders or personal checks. If you suspect telemarketing fraud, call your state attorney general’s office or the National Consumer League’s Fraud Information Center at 202-835-3323 or go to www.fraud.org. Register with the Federal Trade Commission’s National Do Not Call registry at www.donotcall.gov, or call 888-382-1222.

Never let someone push you to make an immediate decision. A salesperson may warn you that the deal will disappear if you don’t buy immediately. It is not rude to decline such high-pressure offers.

Don’t give credit-card or bank-account information or a Social Security number to an unsolicited caller. You should only give out such information if you call your bank or Social Security office yourself.

Don’t invest your money with friends unless you’ve checked them out with securities regulators. And watch out for strangers who develop a friendship and then try to persuade you to invest.

If you’re considering an offer, do research first. Get all the information in writing, and have documents reviewed by your lawyer.

Check the record of any telemarketer with the Better Business Bureau, local consumer groups or state attorney general. Obtain a salesperson’s name, telephone number, address and business license number. Ask which regulator issued the license and check it out.

Brokers and brokerage firms must be registered with the Financial Industry Regulatory Authority or a state securities regulator. You can find links to all state regulators at www.nasaa.org. The site’s “Senior Investor Resource Center” also provides tips on preventing fraud.

For an insurance agent, check with your state insurance department. For a broker, you can review the license and registration, as well as a history of complaints, at www.finra.org/brokercheck, or call 800-289-9999. For registered investment advisers and firms, use the SEC’s Investment Adviser Public Disclosure site (www.adviserinfo.sec.gov).

Adult children and caregivers play an important role in helping older people to avoid becoming scam victims, says John Breyault, director of the National Consumers League’s Fraud Center. “Oftentimes seniors are lonely and looking for someone to talk to, and unfortunately scammers prey on this.”

Sit down and talk to your elderly parents. Remind them not to give out personal or financial information to a stranger -- no matter how friendly or persistent the caller or visitor is. Even if someone claims to represent a well-known charity, your loved one should hang up the phone.

Consider helping your parent take some precautions. One good option is encouraging him or her to grant power of attorney to you or another trusted family member, who will monitor spending. You could also help your parents to set up a fraud alert on credit cards, and register with the Do Not Call Registry. Also, if you live far away from your parents, consider asking a trusted friend or neighbor to check in on them regularly.

Look for changes in behavior that could be a red flag. “If they’re writing large checks and won’t tell you who they’re going to, if they talk about a friend they met on the phone, if they’re getting incessant calls from telemarketers – these all may be signs that a senior has fallen victim to a scam,” Breyault says. “If you see large checks being written or large withdrawals from their checking account, ask who the money is going to.”

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