SEC Finds Fraud at Investment Seminars for Seniors

Last Updated: 9/28/2007

A new study by the Securities and Exchange Commission (SEC) finds that "free lunch" seminars may in fact mislead seniors into making unwise investments. The findings come in the wake of an SEC complaint against several individuals and companies in an alleged scheme to defraud thousands of seniors of their retirement funds.

As part of an effort to protect senior investors, the SEC investigated seminars in which financial services firms offer seniors a free lunch in exchange for listening to investment advice. According to the SEC, 23 percent of the seminars involved possibly unsuitable advice and 13 percent appeared to be fraudulent. While the seminars are advertised as providing financial planning advice, the report found that 100 percent of the seminars were actually sales pitches, half of which featured exaggerated or misleading advertising claims.

The report was released as part of the SEC's second annual Seniors Summit to combat investment fraud and abusive sales practices against older U.S. investors. Free-lunch sales seminars are routinely targeted at senior citizens and are commonly held at hotels, restaurants, retirement communities, and golf courses. The report found that many seniors were encouraged to attend the seminars with misleading claims like "Immediately add $100,000 to your net worth." According to the report, inappropriate sales pitches included recommending risky investments to conservative individuals and suggesting illiquid investments to investors who needed cash.

The report recommends that financial firms supervise sales seminars more closely. It also recommends that ongoing senior investment education efforts include education about "free lunch" sales seminars.

Last week, the SEC filed charges against 26 individuals and companies in connection with a $428 million securities fraud scheme that targeted seniors. According to the SEC's complaint, Michael Kelly and those working with him sold investors timeshares in a hotel in Cancun, claiming the investors would get a guaranteed return. In fact, according to the SEC, payments to investors came from money raised by new investors. The complaint alleges that more than $136 million of the funds invested came from IRA accounts. The complaint also alleges the salespeople who sold the investments collected undisclosed commissions totaling more than $72 million.

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