Galvin leads charge against senior fraud

NEW YORK — State regulators, led by Massachusetts’ William F. Galvin, are stepping up their attacks on financial scam artists who prey on senior citizens.
After filing charges against two annuity salesmen last week, Mr. Galvin proposed the nation’s first set of regulations requiring advisers who claim expertise or certification in financial issues affecting older Americans to prove they have the special training to do so.
“We’ve seen a pattern of abuse by people with a specialty that implies an expertise in financial matters pertaining to older people,” said Mr. Galvin, whose title is secretary of the commonwealth. “But many of these designations are simply used as marketing tools, and the goal is usually to sell annuities. We’ve seen an upsurge in the number of these cases and decided it was time to do something about it.”
A key element of the proposed Massachusetts regulation, Mr. Galvin said, would be to establish an accreditation organization such as the National Organization of Competency Assurance or the American National Standards Institute, both of Washington, to accredit the credential or designation of an adviser or broker-dealer claiming to have financial expertise in working with people over 60 years old.
“It is important to establish an absolute criterion to determine how people get these titles or credentials,” he said.
Nebraska also is in the process of determining which designations for senior adviser may be used, said Jack Hertstein, assistant director of the state’s Department of Banking and Finance.
In January, Nebraska issued a special notice requesting financial services firms to “prohibit the use of all professional designations that state or imply a specialized knowledge of the needs of senior investors” by agents and advisers registered in the state.
And by May or June, state securities regulators around the country will receive a recommendation from the Washington-based North American Securities Administrators Association Inc. for regulations dealing with the issue.
Abuse of designations
The Massachusetts proposal is a “good model” and “a huge step forward,” said Jim Nelson, assistant secretary of state for business regulations and enforcement in Mississippi, who heads NASAA’s special committee on senior designations.
“We’re seeing a disturbing increase of misuse and abuse of these types of designations,” said Mr. Nelson, who added that regulators currently are working on 52 cases in 14 states alleging financial fraud involving older investors.
National regulators also are keeping the pressure on advisers and brokers suspected of preying on older investors.
The Securities and Exchange Commission, which sponsored a well-publicized Senior Summit last June, brought 22 enforcement actions involving fraud against senior investors in 2006, according to agency spokesman John Nestor.
Exposing this type of fraud will continue to be a priority for the commission as “Americans are getting older and are being increasingly called upon to manage their own investments,” Mr. Nestor said.
Washington-based NASD plans to launch by the end of the year an educational program focusing on tactics used by unscrupulous advisers targeting the elderly, said John Gannon, the organization’s senior vice president of investor education.
“We can’t keep up with all the products being offered,” he said, “but the tactics tend to stay the same.”
State regulators cite one of those tactics — inviting seniors to a free lunch or dinner and then applying high-pressure sales tactics to get them to buy an inappropriate financial product — as a growing problem.
“A salesperson will stand up and say, ‘I have this designation. I am an expert. I am specially educated about senior issues,’” Mr. Nelson recounted. “They’ll also say, ‘I have special knowledge that your attorney or broker or accountant doesn’t have.’ The problem is, these statements are usually misleading.”
In its special notice posted in January, the state of Nebraska requested that financial firms submit a list of all licensed agents and advisers “who sponsor or present free-lunch seminars” in the state.
Massachusetts, according to Mr. Galvin, is seeing more events such as these “which are often simply a come-on and a marketing ploy to get people to buy products they don’t need.”
Aggressive tactics
The combative regulator gave no quarter when asked if some might see his tactics as too aggressive.
“I’m responding to a problem I see, and I’m looking after the investor. If they were sitting where I am and could see the people injured by these tactics, they might have a different point of view,” Mr. Galvin said.
Public hearings on Massachusetts’ proposed regulations for senior designations are scheduled for April 24, and written comments are due by April 27.
Mr. Galvin said he expects the regulations to go into effect by early May.