Willie Sutton faced the potential of return fire in every one of his 100 bank robberies from the late 1920s to 1952, stealing $2 million during one of the most successful crime sprees of this century. Because he robbed banks using a revolver or Thompson submachine gun, Sutton spent most of his adult life in prison.
Sutton was often asked, “Willie, why do you rob banks?” A newspaper reporter wrote that his reply was simple: “Because that’s where the money is.”
Today, 80 percent of personal wealth in financial institutions and half of all discretionary income is owned by persons age 50-plus, according to Age Wave, a nationally-recognized research organization. Mature adults are where the money is. The picking is remarkably easy and thieves don’t have to display weapons when trying to take it. Even if caught in the act, few ever spend a day in prison.
Today’s robbers of mature adults promote investment and other scams, using the Internet, telemarketing and direct mail to steal billions of dollars under false pretenses. The bandits don’t face the threat of return fire and their successful theft each year is estimated at 25,000 times that of Willie Sutton in his lifetime of bank robberies.
Investment fraud on mature adults is possible because federal and state law have gaps big enough for an army of schemers and scammers to march through boldly and without interference. This view is held unanimously by two dozen experts interviewed about the problem.
If the scam operators get caught, 90 percent of the law enforcement actions are civil rather than criminal, states Fred Schulte, investigative reporter for the Fort Lauderdale Sun-Sentinel and author of Fleeced: Telemarketing Rip-offs and How to Avoid them.“Some phone-sales rooms pop up in Sunbelt locales where murders and drug-trafficking crimes overtax police, leaving them little time, or desire, to corral con artists,” he said. Florida and California, therefore, are considered havens for fraud operators.
The marks and the scams
Con artists present offers too good to be true. That alone is enough to convince most people that an offer is fraudulent. Yet one in five persons over the age of 50 admits to having been victim of a major fraud, as reported in a March 1999 Princeton Survey Research Associates study for AARP.
Most of the victims are not rich. In fact, most wealthy mature Americans are too sophisticated to be taken by get-rich-quick schemes and scams. The victim is more often the middle to lower income person who seeks or is promoted into seeking a greater return on the money he or she has. They succumb to the “new, proven way to make $50,000 in the next 90 days.”
For example, Viggio Thomsen, of Colorado was taken for his life savings of $90,000 by Now York-based telephone solicitors who touted the Globus Group, a new stock offering for a company that claimed to have the inside track on providing Internet services to businesses in Russia. Thomsen was told that he could gain a far greater return on his money to provide for the added costs of caring for his wife who was diagnosed with Alzheimer’s disease. Thomsen was one of 800 mature investors who ponied up their savings into Globus as sold to them by New York City-based Hillcrest Financial Corp., a.k.a. HFC Capital Group. According to federal and state prosecutors, Globus was a sham with no bona fide assets or operations. Viggio Thomsen died a financial failure before Denver attorney Steve A. Miller found a way through the arbitration process of the National Association of Securities Dealers (NASD) to gain recovery of the loss through the firms representing and clearing the stock purchases. Other victims were not so fortunate, losing all the money which was bilked from them.
A mature widow in Pennsylvania was conned out of the $45,000 from her late husband’s life insurance proceeds. The money went into the high risk and questionable funding of viatical contracts – paying to take over life insurance policies of persons diagnosed with terminal illnesses. Within a month, her entire investment had been taken by a con artist, according to Michael Byrne, director of enforcement for the Pennsylvania Securities Commission, whose office investigated and prosecuted the perpetrators.
“As soon as you think you’ve seen it all, another fraudulent practice arises,” states John Lawrence Allen, former prosecutor of high profile criminal cases in Los Angeles, and now an attorney based in Carlsbad, California, specializing in gaining restitution for victims of investment fraud. Fraudulent get-rich-quick schemes, phony stocks, bonds and trusts, and micro-cap “pump and dump” cons are everywhere, said Allen.
“Pump and dump is one of the most treacherous. At little or no cost, promoters acquire stock of a marginal or struggling business and then hype the venture, claiming non-existent new products and successes to boost the stock price to mature investors they solicit as ‘insiders,’” explained Allen. The con can be promoted by telemarketing or through the Internet. The promoters sell off their stock at prices sometimes thousands of times over the real value and get out. The venture collapses. Investors lose everything and the promoters start over with another investment opportunity that they create or acquire.
Pump and dump schemes are enabled because most micro-cap stocks can be posted on the Over-the-Counter Bulletin Board, where requirements for posting are nearly non-existent. It operates under federal provisions which do not demand the filing of financial, assets or other statements.
Ponzi schemes continue to flourish, re-invented daily in new packages huckstered by con artists. In a Ponzi, the mark – or intended victim – is promised above-market income payments for a significant investment, which the promoter pockets. A few income payments are made, not from the invested funds, but from the funds of subsequent investors. At some point, the scheme crashes. The promoter disappears with millions of dollars and a investor-victims lose. The disastrous results are inevitable, as they have since the Italian speculator Charles Ponzi developed and perpetrated the scheme in the United States starting in 1919.
Thousands of mature adults were being called daily by con artists who claimed that their bank was not prepared for the possible year 2000 computer crash. The person was requested, for his or her own protection, to shift funds to a special, computer-proven investment program. The latter will prove a worthless investment. Or, the pitch may allege potential problems with the person’s credit card because of the Y2K crisis. In each case, the scammer also secures the mark’s bank, checking and/or credit card information, and immediately uses it to clear the accounts of funds.
Pyramid schemes and multi-level marketing programs add to the mix of frauds targeted at mature adults, taking money up front If the con man can get bank or credit card information, he takes more from these accounts before the raiding is discovered.
In addition to the investment schemes, other scammers are using the Internet and telemarketing to promote phony sweepstakes, charitable organizations and worthless merchandise.
Fraud by telephone
Some 14,000 illegal telemarketing firms successfully steal $40 billion each year, more than half of it from mature adults, according to the Federal Bureau of Investigation. A Louis Harris Survey conducted for the National Consumers League found that 92 percent of adults in the United States reported receiving fraudulent telephone offers. The callers present offers too good to be true, demand immediate decisions or “you’ll lose the opportunity forever,” and send couriers to pick up the money.
Once mature adults have fallen for a scheme they are prime to be scammed again Once a victim, the predictability of being solicited again is almost guaranteed, according to the National Fraud Information Center. The lists of people who have already fallen for scam offers are circulated among illegal telemarketing firms.
The few scam operations and operatives who are sued by federal agencies pay fines and then open shop under a new name and location. The very few who are prosecuted criminally walk quickly from short prison terms.
Telemarketing boiler rooms can be established in a few days, operate aggressively and then disappear in hours. They close and move after they have successfully ripped off millions or when they intuitively feel that investigators have enough complaints to close in on them.
Internet fraud increases
As mature adults have become the fastest-growing population segment using computers and the Internet, thousands of scam operations target them through junk e-mail (spam). web sites and web advertising. The federal Securities and Exchange Commission receives 300 complaints of financial losses per day to perpetrators of Internet investment fraud.
According to iMarketing News, lists of proven respondents to e-mail offers can be had for $150 to $200 per thousand names and addresses. The range in number from a low of 50,000 to a high of 1.9 million, all ready to send instantly. Other lists are available within the fraud industry of people who have been taken by their earlier offers.
A professional-looking web site can be created for less than $10,000 to promote fraudulent and worthless investments and present product and market reports, testimonials of support and media endorsements which are fraudulent. Newsletters are offered as authentic investment advice, each designed to market worthless investments, business opportunities and other offers to unsophisticated investors who want greater returns on what money or savings they have.
Fraudulent Internet operations can similarly be established in under a week, send millions of fraudulent e-mail promotional messages a day, and disappear in a matter of minutes.
The federal Securities and Exchange Commission (SEC) has established a 125-person Cyberforce to scan the Internet for investment fraud promotions. The staff shift comes at the cost of reducing investigations in other areas of fraud, including those of stock price manipulation and insider trading, according to testimony by Richard Walker of the SEC to the U.S. Senate Governmental Affairs subcommittee on investigations.
At the federal level, legislation to regulate unsolicited commercial junk e-mail has languished in Congress, challenged by the American Civil Liberties Union as a violation of the guarantee of free speech.
The state of Virginia chose a different path, by establishing rights for Internet service providers (ISP) to sue spam promoters who jam their e-mail systems. The new regulation was sought by the Virginia-based America Online.
California, Nevada and Washington have enacted anti-spam regulations which, while not stopping the onslaught of mail, place new demands for identifying and rejecting unsolicited junk mail.
Stemming the tide
The Federal Trade Commission (FTC) invites consumer complaints and does investigate a small fraction, but its corrective actions are currently limited to civil procedures. In some cases, the agency will issue a cease and desist order only to have the operation close and reopen a block away.
The SEC has regulatory staff and the ability to prosecute in criminal courts, but the number of cases investigated is minuscule when compared to the complaints received.
State attorneys general and local district attorneys bear most of the burden, receiving and investigating complaints from residents as well as referrals from the FTC and SEC, but are pressured locally to prosecute other criminal cases. Also, if the fraud cases involve mature victims, defense attorneys typically try to position the older adults as senile and therefore not credible witnesses for the prosecution.
The National Consumers League and its National Fraud Information Center are conducting an ongoing information campaign. Better Business Bureaus add more consumer awareness. Fraud continues unabated.
Avoiding the fraud
Government agencies have been unable to stop Internet and telemarketing fraud. Civil laws are weak, and few criminal cases are prosecuted.
Robbers without weapons, those who practice fraud, walk freely to the bank with their ill gotten gains.
The intended victim cannot look to government or prosecutors to stop the fraudulent pitch before it is made. Mature adults may have to get tough on their own, saying “no” earlier and more often.
©2000 Leonard J. Hansen
Leonard Hansen, an investigative reporter based in Durago, CO., is researching investment fraud aimed at mature Americans.