Regulators: Crypto, Fake IRAs Increasingly Used to Scam Older Investors

Fraud targeting investors who are age 65 and older are growing increasingly sophisticated, bold, and prevalent as scammers leverage advancements in both financial and personal technology, according to a panel of regulators.

“They’re getting very smart with crypto, finding people on WhatsApp, Facebook, and other social media,” Suzanne McGovern, a senior adviser with the U.S. Securities and Exchange Commission, said on a virtual webinar hosted by the North American Securities Administrators Association last week.

McGovern, who does investor advocacy and education for the SEC, said new scam tactics include having older investors put money into a cryptocurrency account, have them watch it triple, and then send the earnings back to show real returns.

“Then the FOMO kicks in,” McGovern said. “Now, they [the scammers] call back and say ‘we’re at the bottom and crypto is going to pop, you can quadruple it this time,’ and they ask for an even bigger chunk of money…next thing you know the app has disappeared, the investor can’t get anyone on the line, and the money is gone.”

It’s crucial for financial advisers, firms, and trusted contacts such as friends and family to be aware and on the lookout for scams hitting either older investors, according to the panel, which also included members of the Financial Industry Regulatory Authority and National Adult Protective Services Association.

Older consumers reported significantly higher losses to scams in 2021 when compared to 2020, according to the latest date from the Federal Trade Commission. Investment scams rose 213% to $147 million in 2021, business scams rose 131% to $151 million, and government impersonation scams (such as people posing as the Internal Revenue Service) rose 109% to $122 million.

The technology boom among older people during the pandemic has contributed to their susceptibility to scams, said Amanda Senn, chief deputy director of the Alabama Securities Commission and chair of NASAA’s Cybersecurity Committee.

“COVID taught our older population to be online more,” she said, noting that being more familiar with Zoom, social media, and other platforms also make people susceptible to complex scams that use those technologies. “We talk to folks about slowing down…look very carefully at the text message, look carefully at the website. Investment education is key because you can’t keep up with the fraudsters—they’re getting out of control and smarter.”

Another growing area of concern for scams is related to individual retirement accounts, said Richard Szuch, enforcement division chief for the New Jersey Bureau of Securities and chair of NASAA’s senior issues committee. Scammers are telling investors they have approval to invest in a new IRA, or transfer their funds from one to another, Szuch said. One recent scam saw a person lose $450,000 out of their account, according to Szuch.

“The self-directed IRA is a legitimate business model, but a lot of this [fraud] is being funneled through IRAs because nobody is watching them,” he said.

Education, Trusted Contacts

Regulators have been encouraging those in the financial services community to get education and training to identify fraudulent schemes with their older clients, said McGovern. The SEC works with financial firms and regulators to create online learning programs that can be embedded in a company’s training programs.

Regulators have also been working to adjust to the new threats. In January, FINRA updated rule 2165, which protects against financial exploitation of vulnerable adults. The agency extended the timeline for a hold to be placed on an account to an additional 30 days if the suspected fraud is reported to a state department or court, said Jeanette Wingler, an associate general counsel at FINRA.

FINRA also expanded the scope of the rule to not just include funds taken out of an account, but knock-on costs that can come from the fraud, such as capital gains when cashing out an investment, or withdrawal charges from an annuity.

Another key area, the panelists said, is FINRA guidance that an investor always designates a “trusted contact.” This contact, said Jim Wrona, a vice president and associate general counsel at FINRA, is a good “compromise” in terms of having someone who can be a contact, but not have power of attorney to make decisions about investments.

“This is going to be someone that [advisers] can reach out to if there’s a problem,” Wrona said.
“You can say that we think there’s a scam, can you please talk with the customer, and you are able to thwart the scam at that point.”

Overall, third-party scams are now outpacing fraud or theft by close friends or family members, which was once more common, said NASAA’s Szuch.

“This area has grown phenomenally and is likely to grow more because the villains have found success,” he said.