FINRA issued a report today entitled Financial Fraud and Fraud Susceptibility in the United States (.pdf). The name is cumbersome, but the report is illuminating.
Fraudsters target nearly everyone, but older Americans are most vulnerable.
The FINRA Investor Education Foundation conducted a survey of 2364 individuals age 40 or older. More than 80% of respondents indicated that they had been solicited to participate in a potentially fraudulent offer and 11% actually lost a significant amount of money after falling for an offer. Older Americans are particularly vulnerable. The survey found that Americans age 65 and older are more likely to be targeted by fraudsters and, once targeted, are 34% more likely to lose money than respondents in their forties.
Many can’t recognize warning signs of fraud.
Particularly alarming but no surprise to us, is that even in this era of spectacular and highly publicized financial frauds, many Americans still don’t know what to look for when engaging in a financial activity and still can’t identify the classic red flags of fraud. For example, because many people don’t know what would constitute a reasonable return on an investment, they remain vulnerable to fraudulent pitches promising unrealistic or guaranteed returns.
Persons surveyed for the FINRA study were shown actual pitches containing red flags. One offer promised a minimum annual return of 50% while suggesting that an annual return of 110% was more likely. Approximately 42% of those surveyed found this to be an appealing offer. Another pitch pledged that the investment was “fully guaranteed” and the investor could not lose money. This offer was deemed appealing by 43% of respondents. Yet inflated returns and guarantees are two of the most common pitches of fraudsters. In reality, it’s virtually impossible to consistently obtain annual returns of 50%, let alone 110%, and no investment is devoid of risk.
Misguided hopelessness and embarrassment keep 55% of victims silent.
Of primary concern to us as investment litigators is the vast number of fraud victims who fail to fight back. The FINRA survey shows that among persons who admitted to having been defrauded, only 45% reported the fraud to someone. The remainder of those defrauded investors found reasons to keep silent and do nothing. Among those who chose to not report the fraud, the most common reason was that they didn’t think it would have made a difference, followed by not knowing to whom they should turn. Embarrassment also played a key role in this underreporting.
These reasons for letting a bad guy get away with fraud are maddening to us, and we spend much of our time attempting to debunk them. The silent victims, the 55%, need to know that fighting back can make a difference, that good securities lawyers can help them, and that failing to seek help because of embarrassment is unacceptable. The investor advocates of HC&S have represented hundreds of people who, despite being highly educated, successful, and sensible, fell prey to the persuasiveness of con men and fraudsters. These victims sought our help because — embarrassed or not — they were not about to let the bad guys win. And in almost every instance, we’ve helped these clients to recover some or all of their money.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.