Delivered by Commissioner Aguilar’s Chief of Staff: Smeeta Ramarathnam
Thank you, Keith. It is my pleasure to be here today, on behalf of Commissioner Aguilar, to discuss serious concerns confronting investors when they are at their most vulnerable. Commissioner Aguilar asked me to convey his regrets that he is unable to be here in person, and he requested that I deliver this statement on his behalf. It is initiatives and dialogues like this one that are critical to highlighting the most vulnerable in need of help.
Commissioner Aguilar also would like to highlight Keith Green’s leadership and stellar efforts with the American Retirement Initiative. Commissioner Aguilar was honored to be the keynote speaker at the inaugural meeting of the Initiative, last November. We were so pleased that Keith served as the host and master of ceremonies at Commissioner Aguilar’s recent swearing-in ceremony, marking the start of his second term as an SEC Commissioner. It is a delight to be here to support this important work.
Before I continue, however, I need to say that the views I express today represent Commissioner Aguilar’s views, and do not necessarily reflect the views of the Securities and Exchange Commission, the other Commissioners, or members of the staff.
Last year, the actor Mickey Rooney testified before the Senate’s Special Committee on Aging regarding the abuse, neglect, and financial exploitation of seniors. He spoke from personal experience, and his words were heartfelt and tragic. He said
Elder abuse comes in many different forms – physical abuse, emotional abuse, or financial abuse. Each one is devastating in its own right. Many times, sadly, as with my situation, the elder abuse involves a family member. When that happens, you feel scared, disappointed, angry, and you can’t believe this is happening to you.1
He went on to say
I know because it happened to me. My money was taken and misused. When I asked for information, I was told I couldn’t have any of my own information. I was told it was “for my own good” and that it was none of my business.” I was literally left powerless.2
We all know that Mickey Rooney’s story of exploitation is one many investors experience. Commissioner Aguilar is growing increasingly concerned about issues arising from financial exploitation of the elderly. It is clearly on the rise. It has been estimated that at least one in five Americans over the age of 65 – that’s 7.3 million seniors – has been victimized by financial fraud.3 It is the responsibility of regulators to represent the vulnerable by writing and enforcing rules that reduce the opportunity for fraud to take place.
I am going to spend my time with you speaking about some current factors arising from the financial crisis that are exacerbating the vulnerability of seniors.
- First, I would like to discuss a few factors fueling the vulnerability of seniors that deserve greater attention;
- Second, I will talk about the need for greater federal leadership; and
- Third, I will discuss mechanisms that could amplify investors’ voices at the SEC.
Factors Fueling the Vulnerability of Seniors
We all know that we are in the throes of an American retirement crisis. The factors fueling the vulnerability of seniors are many, but they include the following:
- Continued volatility of the market;
- Plummeting values of assets meant for retirement;
- High unemployment and job loss making it impossible to meet day-to-day expenses – much less save for retirement;
- The shift away from private sector employer-based defined benefit pensions to employee-controlled personal retirement accounts4 – individuals are increasingly being asked to be in control of their own retirement future;
- The growth in the percentage of the population who are seniors; and
- The cognitive declines that millions of seniors are facing.
Even with the Dow looking a bit more positive these days, a retirement crisis still looms on the horizon. Moreover, this retirement crisis is taking on a new urgency for reasons that are not receiving the attention they require. The reasons include significant wealth inequality between generations and the decimation of resources provided to state and local authorities.
Demographically, seniors will soon be the largest percentage of the American population. Experts have been forecasting this for some time, as the baby boomer generation ages and retires. What has not been emphasized as clearly is the tremendous generational inequality of wealth between some seniors and everyone else. The good news is that in the aggregate, today’s senior population has been successful in accumulating assets. As noted by Andrew Roth, the Director of Fraud Education and Outreach for the California Department of Corporations, aging baby boomers have accumulated substantial assets, either through inheritance, home equity, or a lifetime of saving for retirement, that are ripe for abuse.5 The bad news is that this disparity between seniors and everyone else, including their own children, exponentially increases the vulnerability of seniors to being exploited.
Because, while baby boomers have accumulated significant assets, the generations that follow may fall into a severely lower income bracket. According to a Pew Research Center analysis, entitled “The Rising Age Gap in Economic Well-Being,” households headed by older adults have made dramatic gains relative to those headed by younger adults over the past quarter of a century.6 For example, in 2009, households headed by adults ages 65 and older possessed 42% more median net worth than households headed by their same-aged counterparts had in 1984. During this same period, the wealth of households headed by adults younger than 35 had 68% less wealth than households of their same-aged counterparts. There is no question that this wealth inequality between the old and young widened substantially with the housing collapse of 2006, the Great Recession of 2007-2009, and the ensuing jobless recovery.7
Take housing as just one example – older Americans have generally benefitted in the form of the long run-up in home values. Most of today’s older homeowners entered the housing market long ago – at pre-bubble prices. While, of course, some seniors have been hurt by the housing market collapse, in the aggregate, most have seen their home equity rise. Compare this to young adults, many of whom bought as the bubble was inflating. And, when the bubble burst, many were left with negative equity.
Seniors have always been a vulnerable population that is in need of more protection. However, this vulnerability is being exacerbated by the significant wealth inequality in American society that is leading to greater opportunities for deception and fraud.
Decimation of Resources to Local Authorities
At a time when vulnerabilities are being exacerbated, the law enforcement and government framework to handle elderly exploitation has been severely cut back. Thus, at a time when the need grows greater, there are far fewer to help.
As the General Accounting Office has explained, “[s]tates are primarily responsible for protecting older adults from abuse, neglect and exploitation.” In each state, an Adult Protective Services (APS) program aims to identify, investigate, resolve and prevent such abuse.8
In 2011, as the economic downturn continued to wreak havoc on government budgets, 181,000 local workers and 63,000 of their state peers were let go.9 In the aggregate, state and local workers have seen their numbers dwindle throughout the Great Recession. Some 656,000 employees have been laid off since mid-2008 as governments try to cope with plummeting tax revenues.10
State and local governments have been decimated of people and resources, and state securities regulators and state APS units have been impacted. A recent study by GAO found that state APS programs faced many challenges – including the nationwide growth in elder abuse caseloads and an increase in the complexity of those cases, which make them more difficult to resolve. Of course, resources are not keeping pace with the changes – as we know, quite the opposite. APS program officials are quick to point out that it is difficult to maintain staffing levels and training. The GAO found that 25 of the 38 states surveyed indicated that total APS funding received from all sources has stayed static or decreased over the past five years, and program officials also ranked insufficient funding for program operations as the most significant challenge they faced.11
On top of that, states indicate that they have limited access to information and may struggle to respond to abuse cases appropriately. Many of these programs also face challenges in collecting, maintaining, and reporting statewide case-level administrative data, thereby hampering their ability to track outcomes and assess the effectiveness of services provided.12
Given this landscape of a vulnerable population growing larger and more susceptible to exploitation, and the fewer resources devoted to enforcing the law and punishing those who commit fraud – one can see the serious opportunity for financial exploitation of older Americans. It is almost as if they are wearing targets on their backs.
Examples of Deception
Given that there is an opportunity to exploit this vulnerable population, we know there will be no shortage of those who will seek to do exactly that. Let me list out just a few examples from the SEC’s enforcement cases, in the last year.
- In August 2011, the SEC charged two Florida men, one of whom has an extensive criminal history, with operating a Ponzi scheme disguised as a purported private equity fund that fraudulently raised approximately $22 million from more than 100 investors, many of whom were Florida teachers or retirees.13
- In May 5, 2011, the SEC obtained emergency relief freezing the assets of a California resident for operating a fraudulent day trading scheme targeting senior citizens that raised approximately $3.3 million.14
- In April 18, 2011, the SEC charged a financial services holding company, its CEO, and others for orchestrating a Ponzi scheme that raised at least $7.7 million from approximately 75 investors, many of whom were elderly and unsophisticated.15
I raise these examples as evidence that there will always be those who want to prey on the vulnerable and seek to exploit them. That is why we must have a strong securities law framework in place that limits the opportunities for fraud and deception, and a well-funded enforcement arm to enforce the law against those who attempt to break it.
However, we are now facing a world where the elderly are even more vulnerable, and their protectors have been undercut and underfunded. Thus, there needs to be a different public dialogue than the one occurring now. Currently, there is an acknowledgement that there is a retirement crisis on the horizon; but the vulnerabilities and harm to the elderly investor, and the lack of a clear safety net, have not been acknowledged enough. It is time to take action at the federal level to cope with this problem.
Need Greater Leadership from Federal Government Including SEC
When it comes to the rise of financial exploitation of the elderly, it is clear there is not federal leadership on this issue. The GAO, while not focused specifically on financial exploitation, found that greater federal leadership was needed in this area, and made several specific recommendations to ensure national data collection and response.16 For example, the report recommended, among other things, that:
- The Secretary of Health and Human Services (“HHS”) determine the feasibility and cost of establishing a national resource center for APS-dedicated information that is comprehensive and easily accessible;
- The Secretary of HHS, in conjunction with the Attorney General, convene a group of state APS representatives to help determine what APS administrative data on elder abuse cases would be most useful for all states and for the federal government to collect;
- A pilot study be conducted to collect, compile, and disseminate uniform, reliable APS administrative data on elder abuse cases from each state.
If done properly and in an integrated way, these tools would be very valuable to federal and state securities regulators, and would help to battle financial exploitation.
However, more needs to be done specifically focused on the financial exploitation of the elderly.
As an independent agency, the SEC could play an important role in highlighting the issue and proposing some policy solutions. There are some fundamental building blocks required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”),17 which have yet to be put in place that would help with this.
Implement Dodd-Frank Act Requirements That Would Aid Seniors
First, Section 911 of the Dodd-Frank Act requires that the SEC establish and maintain an Investor Advisory Committee (IAC). The IAC could be one avenue by which seniors could communicate with the Commission. In fact, Congress realized the importance of ensuring that seniors were well-represented on the IAC, and added a requirement in the statute that one seat be held by a representative of senior investors.18 The goal of the IAC is to provide the Commission with the views of a broad spectrum of investors on their priorities concerning the Commission’s regulatory agenda. This Committee is of critical importance to ensuring that the SEC is focused on the needs and the practical realities facing investors.
Investors face an impossible challenge of representing themselves in front of the Commission, particularly retail investors. Investors do not have the money or the resources to write lengthy comments letters, or participate in meetings with SEC Commissioners and the staff. If the Commission is to be an effective advocate for investors, it will need a strong and effective IAC to ensure that reality. The IAC could be used to gather data about the vulnerabilities of senior investors, which would be invaluable to the public dialogue and an important catalyst to spur policy action.
Second, Section 915 of Dodd-Frank requires that the SEC establish an Office of the Investor Advocate.19 The Investor Advocate is tasked with assisting retail investors to resolve significant problems with the SEC or the self-regulatory organizations. In its report, the Senate Banking Committee explained that it was “necessary to create an office of the Investor Advocate within the SEC to strengthen the institution and ensure that the interests of retail investors are better represented.”20 The Committee was quite clear that this Office was intended to “ensure that the interests of retail investors are built into rulemaking proposals from the outset and that agency priorities reflect the issues that confront average investors.”21 Senator Akaka, who authored this provision stated,
The Investor Advocate is precisely the kind of external check, with independent reporting lines and independently determined compensation, that cannot be provided within the current structure of the SEC. It is not that the SEC does not advocate on behalf of investors, it is that it does not have a structure by which any meaningful self-evaluation can be conducted. This would be an entirely new function.22
Unfortunately as with the IAC, the Office of the Investor Advocate has not been established. It is in the interests of both investors and the SEC, to have this Office up and running as soon as possible.
Commissioner Aguilar encourages all of you to engage on these investor initiatives, and that you encourage that these requirements of the Dodd-Frank Act be implemented with all haste. The establishment of the IAC and the Office of the Investor Advocate will benefit investors, our markets, and the SEC. However, these are just the first steps of what would be needed to bring about sufficient attention and focus to this area.
There are, of course, other federal agencies that can play a role. For example, the new Consumer Financial Protection Bureau (CFPB) and its work related to senior-specific designations for brokers.
Financial professionals can earn a host of designations – such as Chartered Advisor for Senior Living and Chartered Senior Financial Planner – that make them seem well qualified to serve older people. It is deeply troubling that senior-specific designations can be obtained with very little effort. In 2008, the North American Securities Administrators Association (NASAA) issued a model rule on use of these designations. Some of the prohibitions in the rule include prohibiting the use of designations that are self-conferred or lack reasonable disciplinary procedures. To date, 27 states have adopted the rule, and it is pending in two others. However, despite the model rule, the Financial Industry Regulatory Authority (FINRA) issued a notice in November 2011 explaining that some widely-used senior designations don’t require “rigorous qualification standards” and some firms are “not particularly discerning regarding the quality of the designations” that their brokers are permitted to use.23 In fact, more than one-third of the firms that FINRA surveyed permit brokers to use senior designations without any verification of credentials.
Given this landscape, the Dodd-Frank Act charged the CFPB with reviewing the certifications of those who advise seniors.24 In fact, the CFPB has launched an Office of Older Americans – it is this office that is taking the lead on this initiative. Commissioner Aguilar is following this issue with a great deal of interest, and is hopeful that this initiative will lead to a better outcome for investors.
As seniors become the largest segment of the American population, and are faced with economic uncertainties and a growing predatory environment, there can be no delay in addressing the issues they face. Commissioner Aguilar and I commend the American Retirement Initiative and those of you here today for your efforts to find a way forward to improve how we treat our seniors.
Thank you for having me here today.
3 Investor Protection Trust, “Survey: Elder Investment Fraud and Financial Exploitation” (June 15, 2010), available at http:/
5 Kimberly Blanton, “The Rise of Financial Fraud: Scams Never Change but Disguises Do,” Center for Retirement Research at Boston College (February 2012), page 3, available at http:/
6 Pew Research Center, “The Rising Age Gap in Economic Well-Being” (November 7, 2011), available at
7 Id. at 2.
8 Testimony before the U.S. Senate Special Committee on Aging, by Kay Brown, Director of Education, Workforce and Income Security, General Accounting Office (March 2, 2011), p. 1, available at http:/
9 Tami Luhby, Brutal losses in state and local jobs, CNNMoney, January 6, 2012, available at http:/
10 Id., citing Greg Daco, IHS Global Insight.
11 GAO Report to the Chairman of the U.S. Senate Special Committee on Aging, “Elder Justice: Stronger Federal Leadership Could Enhance National Response to Elder Abuse,” (March 2011), available at http:/
13 SEC v. Risher and Sebastian, available at http:/
14 SEC v. Robert C. Butler, available at http:/
15 SEC v. AIC, Inc., et al., available at http:/
16 GAO Report to the Chairman of the U.S. Senate Special Committee on Aging, “Elder Justice: Stronger Federal Leadership Could Enhance National Response to Elder Abuse,” (March 2011), available at http:/
17 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203.
18 Id., Sec. 911(b)(1)(C).
19 Id., Sec. 915.
20 Report of the Senate Committee on Banking, Housing, and Urban Affairs on S. 3217, S. Rep. No. 111-176, available at http:/
22 Senator Daniel Akaka, “Congressional Record Statement: Wall Street Reform” (July 15, 2010), available at http:/
23 FINRA Regulatory Notice 11-52, “Senior Designations,” (November 2011), available at https:/
24 The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, Sec. 1013(g)(3)(B).
luis a. aguilar, mickey rooney, daniel akaka, robert c. butler, frank act, workforce, keith green, greg daco, kay brown, andrew roth, congress, north american securities administrators association, financial industry regulatory authority, federal government, senate committee on banking, housing, and urban affairs, u.s. senate special committee on aging, office of the investor, pew research center, boston college, senate banking committee, u.s. department of labor, center for retirement research, u.s. securities and exchange commission, bureau of labor statistics, securities and exchange commission, california department of corporations, special committee on aging, investor advisory committee, general accounting office, senate, consumer financial protection bureau, usd, aic inc., id. 3 investor protection trust, iac, securities law framework, https://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p125092.pdf, financial services, policy solutions, banking, law enforcement, retail investors, united states, florida, california, pdf, dow 30, corruption, financial crimes, corporate crime, adult protective services, elder abuse, securities fraud, advocate, secretary of health, ceo, chairman, actor, chief of staff, keynote speaker, commissioner, chartered advisor, representative, aic inc, attorney general, director of education, chartered senior financial planner, secretary, director of fraud education and outreach
News: Public Statement By SEC Commissioner Luis A. Aguilar: Investor Voices Renewed: The New Investor Advisory Committee
1637 days ago,(2012/06/12) - News Articles
It is a pleasure to be here with you for the first meeting of the new Investor Advisory Committee. Before I begin, let me issue the standard disclaimer that the views I expres...
1630 days ago,(2012/06/19) - News Articles
Good morning Chairman Bachus, Ranking Member Frank and members of the Committee. I thank you for inviting me to testify at today’s hearing. I’m pleased to be on ...
News: Advocating For Greater Federal And State Securities Regulatory Cooperation And Collaboration By Commissioner Luis A. Aguilar, U.S. Securities and Exchange Commission
1673 days ago,(2012/05/07) - News Articles
Thank you Jack [Herstein] for that kind introduction and let me also take this moment to thank Jack for his leadership as the current President of NASAA (North American Securi...
News: Testimony On The Collapse Of MF Global: Lessons Learned And Policy Implications By Robert Cook Director, Division Of Trading And Markets U.S. Securities And Exchange Commission - Before The Committee On Banking, Housing, And Urban Affairs, United States Senate
1686 days ago,(2012/04/24) - News Articles
Chairman Johnson, Ranking Member Shelby, members of the Committee: My name is Robert Cook, and I am the Director of the Division of Trading and Markets at the Securities and ...
1656 days ago,(2012/05/24) - News Articles
The Securities and Exchange Commission today charged an investment adviser in Scotts Valley, Calif., with running a $60 million investment fund like a Ponzi scheme and defra...
News: Testimony By Richard G. Ketchum, Chairman & CEO, FINRA Before the Committee on Banking, Housing, and Urban Affairs, United States Senate
1686 days ago,(2012/04/24) - News Articles
Chairman Johnson, Ranking Member Shelby and Members of the Committee: I am Richard Ketchum, Chairman and CEO of the Financial Industry Regulatory Authority, or FINRA. On behal...