Securities Regulation and Litigation Lawyer & Attorney : OverRegd Blog : Lindquist & Vennum Law Firm, Minneapolis and Denver

On September 10, FINRA  issued Notice 07-43 aimed at senior investors, demonstrating again that protecting older investors is a priority for regulators.   www.finra.org/RulesRegulation/NoticestoMembers/2007NoticestoMembers/P036815  The Notice highlights four main areas of concern: 

• unsuitable product recommendations to seniors
• use of misleading "senior" designations and credentials
• high-pressure sales tactics aimed at seniors
• red flags when dealing with persons with diminished capacity and suspected financial abuse of seniors

With respect to suitability, the Notice focuses on several products previously noted as posing suitability risks for seniors, namely deferred variable annuities, equity indexed annuities, variable life settlements, and home mortgage investments.  The Notice also highlights the need for care when using retirement savings to make high-risk investments, and cautions firms that a customer's net worth alone is not determinative of whether a particular product is suitable -- even for "accredited" investors.  

Related to FINRA's suitability focus is its emphasis on misleading sales tactics aimed at seniors, such as brokers' use of titles that convey expertise in senior issues (i.e., "senior specialist", "certified senior adviser", "retirement specialist") where such expertise does not exist.   FINRA also cautions against the use of  "free lunch" seminars aimed at seniors where high pressure sales tactics promote products that may not be suitable for all persons in attendance. 

The Notice discusses regulator examinations of broker-dealers designed to protect senior investors, and makes clear that such regulatory focus will continue and will likely increase.  This makes sense, since it is anticipated that over the next 25 years the number of folks aged 65 years and older will double.  www.census.gov/prod/2006pubs/p23-209.pdf  Firms are well served to review and, if warranted, enhance their policies and procedures,  taking into account the common issues to senior investors identified by FINRA . 

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Economic growth in China and strong performances by indexes reflecting stocks traded on well-known Chinese stock exchanges are fueling both legitimate and illegitimate ways to invest in China. Concerned about fraudulent schemes, the NASD on April 23 issued an Alert warning of pump and dump schemes involving the sale of bogus stock in “China” companies. Too often, these companies have no affiliation whatsoever to China or its stock markets. "The fact that a company has 'China' in its name can be misleading, especially since most of the companies being peddled are not even incorporated in China," said NASD Chairman and CEO Mary L. Schapiro.  www.nasd.com/PressRoom/NewsReleases/2007NewsReleases/NASDW_019000

The sales pitches for the bogus stock are sent by e-mail, faxes, and even cell phone text messages. The scheme includes the following typical warning flags:

·        unsolicited messages sent by strangers;

·        promises of extraordinary rates of return;

·        purported “inside” information about the company; and

·        an alleged need to act now to get in on the action.

Through their “pump and dump” scheme, promoters or insiders buy the stock in the touted “China” company low and then use their fraudulent efforts to pump up the stock's price. They then sell their shares at an opportune time for a handsome profit, leaving investors holding the bag. Investors are left with stock shares that they might as well paper their walls with since the stock value has plummeted to a price much lower than when they purchased it.

Just as an oil or gas boon can trigger a wave of dubious investments, so too has China's strong economic growth.  For some, the time is ripe to score big or lose it all.  The key is to be informed in the process.

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