On March 27 the Financial Industry Regulatory Authority (FINRA) hosted the Senior Investor Protection Conference in Washington, DC. This one-day conference was an opportunity for conference participants to learn effective strategies and solutions for protecting seniors and other vulnerable investors from investment fraud and get up-to-date regulatory information.
The National Council on Aging reports the rise in scams targeting older adults with 2021 statistics revealing 92,371 older victims of fraud which resulted in $1.7 billion in losses, of which $239 million was attributable to investment scams.1
Their research further revealed that the use of cryptocurrency (digital assets, such as Bitcoin) is common in investment scams and resulted in more than 5,100 fraud complaints to the Internet Crime Complaints Center (IC3) in 2021.2
Elizabeth Yoka, a manager for the FINRA Securities Helpline for Seniors, relates that because of the social isolation and deaths of spouses during the pandemic, many seniors turned to social media sites, such as WhatsApp, Facebook and Twitter for social connections.3
Once on WhatsApp seniors reported getting a random text with just the message, “hi” and nothing else. That is where the conversation starts and the sender then follows up with a message that they didn’t mean to text the senior, but in case the senior is interested they have a friend who is really good at cryptocurrency and can let the senior in on some investments where they can double their money.
A clear warning sign that the investment isn’t legitimate usually comes when the scammer asks the senior to pay for the investment with either gift cards or cryptocurrency through a crypto ATM machine located at a liquor store, vape shop, or gas station.4
An equity-based scam that is gaining in frequency is being termed the “ramp and dump scheme” according to Mayur Patel, a senior principal intelligence specialist with FINRA’s Financial Intelligence Unit.5 It often starts with that unsolicited email or phone call, relationship building based on the call or email, and then the ramp and dump scheme commences where the scammer buys large percentages (nearly 90% in some instances) of an initial public offering (IPO) allocation.
The IPO is usually a small capitalization IPO listed on the lower tiers of Nasdaq and the New York Stock Exchange. When the IPO commences, the scammer withholds those shares and the price increases. They tell the investors to purchase the stock at its highest point and shortly after that the stock price collapses significantly because the scammer liquidates their shares. FINRA has issued Regulation Notice 22-25 6 on this particular scam.
As these situations increase in number and in the skill of the scammers FINRA is counseling investment professionals to ask questions of any elderly investor who suddenly starts displaying behaviors that are not in their regular patterns of withdrawals on their investments. For example, if a senior begins taking withdrawals of thousands of dollars at close intervals the financial professionals should inquire about what the senior is paying for with the withdrawals and ask for documentation supporting the senior’s answers.
Many times the scammer will tell the senior what to say when questioned about the withdrawals. For seniors, this should be another warning sign that the investment is not legitimate.
Family members often contact agencies such as the FINRA Helpline for Senior because they suspect that someone is perpetrating fraud on a loved one who is a senior and they can’t convince the loved one that they are being victimized.
“They are just so lonely they want to believe it so bad… they want to really believe that this is a true investment,” said Elizabeth Yoka. For those families where their senior loved one is adamant that the investment is legitimate, Yoka suggests reaching out and alerting agencies that deal with fraud perpetrated on seniors. ”
Adult Protective Services will do wellness visits to the individual’s home as will the FBI and sometime local law enforcement,” said Elizabeth. Having a representative from one of these organizations talk with the senior may help them see that there is a legitimate cause for concern over their decision to invest with a questionable entity.
FINRA instituted Rule 2165 (Financial Exploitation of Specified Adults) to help protect vulnerable individuals.7 This rule and amendments adopted in March permit FINRA member firms to: (1) place a hold on a securities transaction (in addition to the already-permitted hold on a disbursement of funds or securities) where there is a reasonable belief of financial exploitation; and (2) extend a temporary hold on a disbursement or transaction for an additional 30 business days, beyond the current maximum of 25 business days (for a total of 55 business days), if the member firm has reported the matter to a state regulator or agency, or a court of competent jurisdiction.
What to Do
Take action to protect your rights by contacting an experienced investment fraud attorney. It is critical in establishing a legal strategy that is effective and protects investor rights. If you have questions about investment fraud, financial schemes, broker misconduct, or about your broker’s management of your account, please contact our Securities Fraud Law Firm located in Detroit.
Our securities attorneys have decades of experience in helping countless individuals recover from investment losses. Call for a Free Case Evaluation today.
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1,2 The Top 5 Financial Scams Targeting Older Adults, by Genevieve Waterman, 7/27/2022
Link: https://www.ncoa.org/article/top-5-financial-scams-targeting-older-adults
3,4,5 Podcast: 2023 Senior Investor Protection Conference: The Latest Rends, Scams and Schemes, 4/18/2023
Link: https://www.finra.org/media-center/finra-unscripted/2023-senior-investor-protection-conference
6 Regulatory Notice 22-25 FINRA Alerts Firms to Recent Trend in Small-Capitalization IPOs, 11/17/2022
Link: https://www.finra.org/rules-guidance/notices/22-25
7 FINRA Adopts Amendments to FINRA Rule 2165, 2/15/2022
Link: https://www.finra.org/rules-guidance/notices/22-25