Many of our elderly clients have accumulated comfortable nest eggs funded by a lifetime of hard work and sacrifice. This can make them particularly vulnerable to financial predators who victimize them through sophisticated “investment” schemes that seem legitimate to the unwitting.
Our advice is to everyone, young and old alike, is to beware of doing business with people who suggest that you invest in deals that will generate a huge return on your funds in a relatively short period. Living by this precept can save you some headaches: “If it sounds too good to be true, it probably is.”
At Scott Counsel, we have personally witnessed several clients and friends who were persuaded to mortgage their homes to invest in Ponzi operations, highly leveraged real estate deals (now underwater) and risky tax shelters. Many of these “opportunities”, if not most, went south and sour. The investors were saddled with the sting and burden of expensive mistakes. If you do not understand how the investment works (including the purported tax benefits), keep your money for another opportunity – which will certainly come along.
Over the past decade, the spotlight has been on two major Ponzi schemes – Bernie Madoff who attracted $65 billion from his investors over a 20 year period and Allen Stanford whose investors entrusted him with $8 billion over a decade. However, most “scammers” do not run operations of that magnitude and NEVER call them Ponzi schemes. Most of the time, they seem like “regular” investments that are doing consistently well. Many people unknowingly invest in Ponzi schemes (which are more prevalent than one might think), trusting others to conduct due diligence and to continue monitoring the investment.
R.P. McCabe and 700 others invested in excess of $100,000,000 in a real estate investment. McCabe, who lost $1 million (most of his life savings), reports that his wealth management company steered him toward the investment which paid off in the 10 to 12% range after about four years. The investors later discovered that the financial statements were phony and that distributions were not profit based but represented funds collected from new investors as well as the capital of current investors.
After becoming aware of the loss at age 65, McCabe fell into a “deep psychological depression” which destroyed his 34 year marriage. Taking control of his life after months of therapy, he decided to write a novel with a theme of financial fraud. In the course of researching Betrayed, he interviewed 200 of the 700 victims about how the scam changed their lives. He reported that “Suicide is very common after financial fraud has been committed. The psychological impact for a lot of us was a deep shame and self-recrimination that we should have seen it coming. The thing is, we weren’t investing in something sketchy. The investors here were not overreaching with some get-rich-quick scheme like a promise of a 25 percent return on something in some banana republic.”
For more information on investment schemes and various other scams perpetrated against seniors, check out our Resources page for a free download of Senior Shakedown: The Unknown Dangers of Getting Old, and How to Protect Your Loved Ones written by Principal Attorney Justin L. Scott.
If you or someone you love believe they have been the victim of a financial scam, call Justin at 856-281-3131.