1:00pm

Wed December 14, 2011
Your Money

Money Scams Snare Desperate Investors

Originally published on Wed December 14, 2011 2:40 pm

Transcript

NEAL CONAN, HOST:

'Tis the season for scams. The suspicious email asking for a helping hand, the website that promises a free product in exchange for a credit card number, or the bogus charity. This year, there's been a significant increase in investment scams, Ponzi schemes, fraudulent promissory notes and worthless investment contracts targeting especially at baby boomers. Kelly Greene is a staff reporter for The Wall Street Journal, and joins us now from her office in New York. Nice to have you with us today.

KELLY GREENE: Thank you for having me.

CONAN: And tell us a little bit of a man named Keith Grimes.

GREENE: Keith Grimes is a gentleman who lives outside of Lakeland, Florida. He worked very hard his whole life, worked his way up to being a supervisor in - mainly in quarries in Florida, and saved up close to $500,000. Then he bought a powder-coating business, unfortunately, right before the financial crisis in 2008, but still managed to sell that without taking a loss and had accumulated a nest egg of about $500,000. He was trying to figure out how to move to some land he'd managed to buy earlier in Tennessee and invested it, basically, with the wrong guy.

(SOUNDBITE OF LAUGHTER)

CONAN: He invested it with a guy who was running, it turns out, a Ponzi scheme. But Keith Grimes wanted to aggressively invest that...

GREENE: Yes.

CONAN: ...half million dollars so he would have enough to retire on.

GREENE: Well, and ironically, he thought he was being very conservative because he was investing in a - in what was perceived to be a private equity fund that his stepmother, who was a retired teacher, already had invested in, and which she was introduced to by a local marketer who had been just a really plain vanilla insurance agent in this town who went to church with a bunch of people who invested. This is really typical, you know, the sort of cliche for this is, it's called affinity fraud.

But, you know, people - with all of the shenanigans on Wall Street, with all of the volatility in the market, the unpredictability, I think people are beginning to feel more comfortable with someone who is tangible, who lives where they live, even if they know very little about their actual track record or experience.

CONAN: And this scammer was promising, what, 14 percent returns?

GREENE: Yeah, 14 to 24 percent returns. There was a marketer who lived around Lakeland. He was working with a supposedly very experienced and successful trader who was in Sanibel, which is a couple of hours away. And what was not disclosed was that the trader actually had three prior convictions related to investment fraud as well, and...

CONAN: And declined to comment for your article because, well, you tried to reach him in prison.

GREENE: Right. He was sentenced to more than 19 years in federal prison this past week.

CONAN: We're talking with Kelly Greene of The Wall Street Journal about her piece "Boomers Wearing Bull's-Eyes: Postcrisis, Those Over 50 Targeted in Investment Scams; Problem is 'Rampant.'" Boy, they write that like poetry over there at The Wall Street Journal.

(SOUNDBITE OF LAUGHTER)

CONAN: You're listening to TALK OF THE NATION from NPR News. And why is that investment scammers are targeting baby boomers, do you think?

GREENE: Well, they have the money. They - the thing is baby boomers have the most - of anyone right now, maybe, you know, this people are on the cusp of retirement, this is as much as they're going to have saved. But it's not as much as it was three years ago. And so people, you know, we're still down 15 percent from where the market was in October 2007 or where the Dow Jones Industrial Average was in the late 2007. And so the natural inclination is, if you want to retire and you don't quite have enough to do it, is to try something that will goose your returns just a little bit more.

And, you know, OK. We should all probably know better than to think we can easily get a 24 percent return a year right now. But, you know, basically, the way that this particular investment we were just talking about was pitched and that many others have pitched is that its guaranteed. You can't lose your principal. That's a very, very big - a big thing right now, is to tell people that they can't lose their principal even when they really can.

CONAN: And this problem has roughly doubled over the past year, according to some of your sources.

GREENE: Yeah. It was remarkable. There's this group, a national group of the state securities regulators. Those are the public officials in every state. They often work in the Secretary of State's office or with the attorney general or like the banking department. And those are the folks who basically are called in to figure out what happens when people lose their money. You know, they also, if you call them before you invest, will tell you whether someone is actually registered to sell an investment in your state, and whether they've had any troubles in the past.

CONAN: That's no guarantee either, by the way.

GREENE: Yeah. It's true.

(SOUNDBITE OF LAUGHTER)

CONAN: But in the meantime...

GREENE: However, in many cases I have written about, that phone call would have prevented losses of hundreds of thousands, sometimes millions of dollars.

CONAN: There is another place you should probably try to avoid and that is the free-lunch seminar.

GREENE: Absolutely.

CONAN: What - how does that work?

GREENE: Well, what happens is you get this invitation to learn more about how your savings for retirement or a better way to draw a retirement income, something rather vague and seemingly benign. And, you know, when you get a free meal often at a restaurant that you know and you like, and so you go. And typically, what happens is that a lot of concepts are presented, which are logical and attractive and appealing and makes sense to people who know a little bit about investing on their own. And you provide - if you want to learn more, you provide your information, and then you are pitched a very specific investment later.

One case that I looked at was in Missouri, where after a series of these seminars, this one insurance agent sold the exact, same kind of equity-indexed annuity to something like - I think it was 36 out of 37 of the people who had come to, like, three or four of these seminars.

CONAN: That's efficient.

GREENE: Yeah, it is.

(SOUNDBITE OF LAUGHTER)

GREENE: But it's highly unlikely that all those people had exactly the same investment need.

(SOUNDBITE OF LAUGHTER)

CONAN: This is probably right. But he had the same investment, which was to pad his bank account and leave town as quickly as possible.

GREENE: Well, although he didn't leave. He still is - he tried to stay in business but the state securities commissioner finally issued cease and desist order that prohibits that.

CONAN: The upshot of this is be very careful. I wonder with the retirement money that you get there at The Wall Street Journal, you put that in a pillow under your mattress?

(SOUNDBITE OF LAUGHTER)

GREENE: Boy, there were a few weeks in 2008 where I considered it.

(SOUNDBITE OF LAUGHTER)

CONAN: It sounds like a wise investment. It's so volatile that you look for something that does seem to have that air of you're not - you can't lose.

GREENE: Right. That's - it's very appealing to people right now. And, you know, look, the choices out there right now are difficult. They're not appealing. They're not pleasant. You know, interest rates are low. Stocks are risky. The best thing that you can do is diversify.

CONAN: Diversify, get a little in here and a little in there. And if one thing goes belly up, you're going to be OK anyway.

GREENE: Right.

CONAN: Kelly Greene, thanks very much for your time today.

GREENE: Thanks for having me.

CONAN: Kelly Greene, a staff reporter for The Wall Street Journal. She joined us from our bureau in New York. You can find a link to her piece "Boomers Wearing Bull's-Eyes" at our website. I'm not going to read the rest of that poetry. That's at npr.org. Click on TALK OF THE NATION.

Tomorrow, next year's politically-charged term at the Supreme Court, from immigration to health care. We'll talk about what to look for. This is TALK OF THE NATION from NPR News. I'm Neal Conan in Washington. Transcript provided by NPR, Copyright NPR.

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