Protecting Our Wise Elders from Fraud: Interview with Marie F. Smith, President of AARP

As well-off Baby Boomers age, the pool of elders vulnerable to fraud is growing. Marie F. Smith, president of AARP, encourages fraud examiners to "keep up the good fight" in protecting the elders in their communities.   

"Injustice of any kind makes my blood boil," says Marie Smith during an interview with Fraud Magazine. "... As president of AARP, I become particularly incensed when I see crooks targeting older people," Smith says.

As baby boomers age, elder fraud undoubtedly will increase. Fraudsters are stealing elders' savings through telemarketing fraud, investment scams, door-to-door cons, identity theft, and charity fraud, among other schemes. And they appear to be getting better at it.

"Our vulnerable adults are at risk of being targeted for particularly pernicious crimes directed at their financial security," Smith says. "Studies point to psycho-social factors of trust, financial naivete, cognitive impairments, social isolation, dependency, fear, and embarrassment as cracks in victims' defenses against exploitation." But she says, "credit must be given to, or blame placed with, the perpetrators. They are good at what they do. They practice many time-tested psychological tricks that would wear away the defenses of even the most skeptical consumer."

Smith, a resident of Hawaii for almost 30 years before assuming the top AARP post, says older friends in her state are called kapuna, wise elders - the ones who have contributed to society, worked a lifetime, and raised families. One of her primary goals at the 35 million-member AARP is to protect the kapuna. "It's appalling that they should be victimized by professional tricksters."

Smith spoke to Fraud Magazine from her office in Washington, D.C.

By 2030, according to the U.S. Administration on Aging, the number of elderly is expected to nearly double to 71.5 million people - 20 percent of the entire U.S. population. Those aging Baby Boomers possess a great deal of wealth. Can you talk about the potential for elder fraud in the upcoming years?The potential for even more elder fraud is undeniable. The Boomers, the cohort with the greatest control of personal wealth, are entering retirement burdened with more debt than their parents could dream of and overconfident that their money will last long enough. The crooks and thieves know this and, in anticipation, are practicing their pitches and perfecting their ploys.

Elder fraud can be divided into many different categories - telemarketing fraud, investment scams, door-to-door cons, identity theft, charity fraud, Medicare drug discount card scams, etc. What do you see as some of the more prevalent scams as we move into 2006?
We need to be prepared for the full panoply of scams. The fraudsters are very adaptable, adjusting their techniques and pitches to new technology and the news of the day. Five years ago identity theft was pretty much unknown and phishing was not part of our vocabulary. Today, as we all know, identity theft and phishing are huge problems. The Federal Trade Commission in testimony this summer to the Senate Special Committee on Aging found that consumers over age 50 most frequently complained in 2004 about Internet auctions; prizes, sweepstakes and lotteries; foreign money offers, advance-fee loans and other credit "protection"; and business opportunities and work-at-home plans. The daily headlines, like those in news scans provided by the National Elder Abuse Center and the American Society of Adult Abuse Professionals and Survivors, have a constant barrage of stories of seniors losing their homes to predatory lenders or their life savings in fraudulent investment schemes, or purchasing health insurance or discount cards that turn out to be worthless, or being sold at age 85 variable annuities that won't pay out until they are 125. The major problem that older consumers as well as all consumers face is that we have to be alert 360 degrees because the frauds come at us from all directions, by phone, via the Internet, at the door, and in the mail.

It appears that the volume of elder fraud cases is increasing. If this is so, what do you see as some of the reasons?
Fraud complaints by consumers over age 50 to the FTC's Consumer Sentinel increased two-fold from 2002 to 2004. I'd like to think that this increase is a result of efforts by AARP and other consumer advocates to urge consumers to be alert to scams and to report them to law enforcement and consumer protection agencies. It may be that consumers are losing their reluctance to come forward and get help. It demonstrates that law enforcement and attorneys general are devoting resources to go after the bad guys. But it also shows that fraudulent schemes to strip our elders of their financial security are increasingly a serious problem.

What are the results of some recent AARP studies on elder fraud?
In our research report "Off the Hook" we found that the crime of telemarketing fraud is grossly underreported among older victims. As part of our DOJ-funded research of telemarketing fraud victimization, we interviewed by telephone victims of investment and lottery scams whose names were found on "mooch" lists seized in criminal investigations. Seventy-three percent of the investment fraud victims did not acknowledge having lost money, although law enforcement had previously contacted each of them. Only half of lottery scam victims reported recent losses.

In another part of the research we also tested different intervention messages with known victims to see if we could affect their responses to subsequent telephone sales pitches. Peer counselors called people at home to share information about telemarketing fraud and explained steps for avoiding fraud. A few days later, counselors called back and delivered a pitch mimicking a fraudulent offer using the same methods as the telemarketers. In almost every instance, people who heard intervention messages were far less likely to respond to the "sting" solicitation. The most successful message reduced participation by two-thirds. Peer counseling about the specific dangers of telemarketing fraud and how to handle the psychological techniques of fraudulent telemarketers is effective.

Why is it so hard to statistically document elder fraud?
Like all forms of elder abuse, everyone recognizes that what we do see and hear about fraud is only the tip of the iceberg. Fraud victims may be reluctant to report the crime because they fear the consequences if friends or family find out they have been taken advantage of. They may hold steadfast to the hope that they really are a winner, and refuse to shake that belief when others try to dissuade them. And they may not even realize that the "nice young man" on the phone talking them out of their money is actually a crook.

What are the factors that make elders easy marks?
Our vulnerable adults are at risk of being targeted for particularly pernicious crimes directed at their financial security. Studies point to psycho-social factors of trust, financial naiveté, cognitive impairments, social isolation, dependency, fear, and embarrassment as cracks in victims' defenses against exploitation. But it is not so much the victims' purported vulnerabilities or weaknesses that "allow" these crimes to happen. Credit must be given to, or blame placed with, the perpetrators. They are good at what they do. They practice many time-tested psychological tricks that would wear away the defenses of even the most skeptical consumer.

When you give presentations to elders and their caregivers what's on the top of your advice list?
At the top is the message, "Check it out." Whether it is an investment opportunity in a variable annuity touted at free lunch seminar, an e-mail request to link to a Web site to verify account information, or the promise of lottery winning for a small tax fee, everyone has to check out the truth behind the deal. We need to independently verify not only what is being said, but who is saying it. No matter who someone says they are or whom they represent - even if they say they are from the bank, or the IRS, or the FTC, we have to take the time to look behind the screen to see who's really the Wizard of Oz.

Is there a "typical" profile of an elder fraudster or are their characteristics, traits, and motivations all over the map?
The most common traits are nice, considerate, concerned, interested, and informed, or at least so they try to appear. When someone is trying to steal with words, rather than with a gun, they have to come across as non-threatening and be very convincing. Two University of Tennessee professors, Neal Shover and Glenn S. Coffey, interviewed 47 telemarketing offenders convicted of federal crimes to gain a better understanding of who are the perpetrators. They found that, unlike typical street criminals, the offenders come from overwhelmingly "traditional" families and demonstrate low levels of prior criminality. They are initially attracted to telemarketing for its good pay, flexible hours, and lack of dress codes. The big money they make supports lavish lifestyles and drug habits. They believe they are outstanding salespersons and are supremely confident of their ability to sell despite resistance. As one interviewee said, "It was power, you know; I can make people do what I wanted them to do. And they would do it."

What are the best steps a son or daughter can take to protect their aging parents?
The best thing that any son or daughter can do is to have open communication that respects their parents' independence and autonomy, and guides them toward trusted sources of information. That said, it doesn't hurt, when visiting an older loved one, to keep an eye out for some of the signs of fraud. These signs may include an excessive amount of junk mail, multiple new magazine subscriptions, or stacks of junk "prizes" that came through the mail. The presence of any of these things should spur a conversation between child and older loved one. Again, it's vital to respect the loved one's autonomy and independence. Threatening or derogatory comments will be totally counter-productive. Concrete steps, though, may be to help aging parents sign up for the Do Not Call Registry, opt out of pre-screened credit offers (1 888 5 OPT OUT), sign up for the Direct Marketing Association's mail preference list, install virus and spam blockers on their computer, and get their credit reports.

Right now, what are the typical hurricane solicitation scams being foisted on elders?
Almost before the water had stopped rising in New Orleans, devious scammers were creating Web sites pretending to be legitimate charities to take advantage of Americans' generosity to help the evacuees. They post pictures of children and ask for money to help reunite families. Of course, the money goes into the pockets of the scammers and not to any disaster victims. According to FBI assistant director Louis M. Reigel, within a week after the hurricane struck, of the 4,000 sites claiming to offer help to Katrina victims, up to 60 percent were likely bogus. There are versions of the Nigerian scam, in which someone purports to want to transfer large sums of relief money from overseas and needs a convenient bank account to deposit the money. Others pretend to be FEMA staff or insurance adjusters and take money to fill out claims. Unscrupulous contractors demand cash to cover roofs with tarps and then disappear.

Can you talk a little about some of the mechanics of typical elder scams such as the selling of "mooch" lists, con artists' patter, etc.?
Telemarketers may be creative in their spiels, but their techniques are all pretty much the same. They get on the phone and keep dialing until the find someone they can keep on the line. They'll use whatever banter works to find out as much personal information as they can. They're skilled in subtle questioning so the person doesn't realize they've revealed too much. The more they learn about a person the better they can shade their pitch chameleon-like to match the victim's personality. The more sophisticated operations will work from lead lists, or mooch lists, that they purchase from businesses that collect information about disposable income or past interest in various kinds of promotions. They will also use sales scripts, turn over promising contacts to a more experienced "closer," or have "reloaders" who keep contact with victims in hopes of persuading them to send more money.

Even with the Do-Not-Call Registry, telemarketing fraud seems to still be a problem with elders. Why is this? Do you have any transcripts of successful telemarketing scam phone conversations with elders?
The criminal telemarketers really don't care if there is a law requiring them to scrub their calls lists for numbers on the Do-Not-Call Registry. They'll place calls to anyone on their mooch lists despite a Registry listing. If someone is on the Registry and gets a call, it's a signal that the person calling may be intent on committing a crime. Doug Shadel, the AARP Washington State director, has teamed with Professor Anthony Pratkanis of UCSC and law enforcement agencies, to analyze hundreds of undercover tapes of cons in action. They have co-authored "Weapons of Fraud" as a new source book and audio CD package that goes deep into the shadowy world of professional scammers. The CD contains audio clips of actual con artists as they unwittingly attempt to rip-off undercover investigators posing as elderly victims. The free book and CD can be ordered at weaponsoffraud@aarp.org.

Variable annuity fraudsters seem to be targeting elders. How can elders and their families protect themselves? What are some of the fraudsters' techniques? What are some of the other new investment scams?
There is nothing inherently wrong with variable annuities. For the right person an annuity can be a sound investment option. AARP is concerned about the sales tactics used to convince older investors to purchase an annuity when it is clearly unsuitable for their circumstances. The problematic scenario may go like this: The older investor, who may be concerned about making sure that his money will stretch to cover medical or care expenses, gets an invitation to free dinner at a retirement planning seminar. The session is solely a promotion platform where the merits of variable annuities are exalted. If the diner seems interested and slips into releasing a phone number, a salesman will soon show up on his doorstep. The salesman will demand to inspect bank accounts and broker statements and the hard sales pitch will continue often for hours until the investor is worn down and signs just to get rid of the salesman. Despite the lengthy pitches, the investor is sold a complex investment product he does not understand, is not told that annuities award the salesman some of the highest commissions in the investment business, and doesn't realize that his money is tied up for years and unavailable for any emergencies without steep withdrawal penalties. (See sidebar below.)  

Can you talk about the specifics of Medicare drug discount card scams?
Using all of the commotion in 2005 about drug prices and new government benefits as a smoke screen, some promoters peddled drug discount cards that were basically worthless. The genuine discount cards were available to Medicare beneficiaries as a way to reduce their prescription drug costs while waiting for the new Medicare Part D benefit to become available in 2006. Now, seniors must choose, if they wish, a Part D plan. The first scams with Part D included efforts to sell unapproved plans before the official start of the enrollment season on Nov. 15. One AARP chapter president caught a scammer using a Part D pitch to steal her identity by asking for routing numbers on her bank checks. AARP is concerned that con artists, sometimes purporting to be from insurance companies, are trying to take advantage of potential enrollees and cash in. They try to steal Social Security numbers, credit card information and bank account numbers. Some offer to help people enroll for a fee - even though there's no charge to sign up. Anyone with questions about whether a provider is legitimate can call 1 800 MEDICARE.

Can you explain some of the techniques predatory lenders use on elders?
Predatory lenders typically target older minority homeowners who may be in financial difficulty. They hunt for people who may be behind on property taxes, who need to fix up their homes, or who need money for medical bills. Once they find these people, the lenders often use high pressure sales talk, high interest rates, outrageous fees, and repayment terms that the homeowners can't afford. They trick homeowners into taking out loans with terms that they can't pay back. Instead of helping the homeowner out of credit difficulty, they push them on their way to foreclosure. They use promotions that suggest that bad credit is no barrier to a low-cost loan. Closing costs, hidden fees, or interest rates may dramatically increase when the borrower gets to the settlement table. They may roll in credit card debt or pad the settlement costs to artificially increase the amount borrowed - and their commissions. To make the monthly payments sound affordable, the loan may never amortize or there may be an undisclosed balloon payment. Punishing prepayment penalties are included to lock the borrower into a disadvantageous loan. Then to add to the insult, they push frequent refinancing with another round of commissions and settlement fees added to the principal, further stripping the home's equity.

It seems that elders are particularly susceptible to online "phishing" scams. What are some of the latest versions?
Phishers are getting so sophisticated that even the experts are having a hard time telling what's a fake. It used to be that misspellings and strained syntax were obvious giveaways that the e-mail and the Web site were faux. The most common come-ons are requests from a bank or other likely business to follow a link to a Web site to confirm personal information. Typically the message has some urgent reason to act fast, before money vanishes, accounts are closed, or credit is charged. The "act fast" line is a diversionary tactic to get the reader to forget common caution to check it out before acting. The latest phishing expeditions tend to build on government connections. For example, you failed to show up for jury duty, or your taxes are about to be audited, or the police have recovered your money.

How can elders protect themselves against door-to-door sales including home-improvement contractors?
Be wary of all door-to-door solicitors. Even if someone has a good line, like being a utility company employee who needs to check something inside the home, don't let them in until you have independently verified who they are. Don't take for granted the number they give you to call or the identification badge they show you. This type of line is used all over the country by thieves who frequently work in pairs. One distracts the homeowner while the other pockets money and valuables. Door-to-door handymen, tree trimmers, driveway fixers, roof inspectors and the like who say they were "just in the neighborhood" or "working down the street" are well known to police departments for taking cash and then disappearing. Don't do business with them. If you do buy something from a door-to-door peddler, you have three business days to cancel the deal for any reason and get your money back. (For more tips about avoiding door-to-doors sales, see www.aarp.org/money/wise_consumer/scams/a2002-10-01-FraudsDoortoDoorSales.html - ed.)

Many elders are falling for the new twists on the lottery or prize scam. What's going on there?
The lottery scam can get dressed up in new clothes, but it's still illegal to have to pay anything to win a prize, no matter what the lottery's origin or the fee's name. Calls or letters announcing that prize winnings from the Canadian lottery or El Gordo are being held in your name may sound thrilling, but the money is not there. Nevertheless, the Binational Working Group on Cross-Border Mass-Marketing Fraud, reports that this fraud remains one of the most pervasive forms of white-collar crime in Canada and the United States. The PhoneBusters National Call Centre estimates that on any given day, there are 500 to 1,000 criminal telemarketing boiler rooms opearating in Canada, grossing about $1 billion a year. The criminal telemarketers prefer their victims to use electronic payment services, are using more complex and sophisticated methods of laundering proceeds, and have growing involvement with organized criminal groups. To make their crimes harder to detect, they use disposable cell phones, prepaid calling cards, stolen identities, multiple mail drops, and law enforcement impersonation.

One new twist with a double blow combines the lottery winning letter with the fake check scam. This money-making ploy involves a large check that the victim is told to deposit and then refund a smaller amount keeping the difference. Of course, the check is counterfeit so instead of gaining a commission, the victim loses the total check amount. One alert Palm Beach senior spotted these two plots in one scam when he received a phony $4,000 check as an advance on the taxes he needed to pay to collect his $49,000 lottery payout.

What are the many inherent dangers in pre-paid funeral plans?
The main risk is that the money won't be there when the family needs it. The funeral home disavows the existence of an agreement or refuses to honor the contract on some technicality. Or the money was never placed in trust, disappearing into the pocket of the promoter. The plan is lost, forgotten, or overlooked. Issues arise about the portability or transferability of the plan when the consumer moves to another location but the contract does not.

What kind of cooperative arrangements does the AARP have with other groups in the public and private sectors in fighting elder fraud?
We have many long-standing partners in the fight against fraud including the Federal Trade Commission's Bureau of Consumer Protection, and national consumer organizations like the Consumer Federation of America, National Consumers League, and the National Association of Consumer Agency Administrators. Our state offices work very closely with attorneys general and local law enforcement, TRIADS and SALT groups. In 2005, AARP Missouri worked with the Missouri bankers' associations and the department of human services to develop an extensive training module for front-line bank employees to help them spot, stop, and report fraud. Starting in 2006 about 30 of our state offices will be teaming with state securities commissioners to carry messages about investment fraud to older investors.

What can members of the Association of Certified Fraud Examiners do to fight elder fraud in their communities?
Keep up the good fight. Seek out every opportunity to speak with senior groups and local media to talk about all the frauds going on their neighborhoods. Partner with AARP state offices at consumer universities or fraud forums. And continue to be sensitive to any unique circumstances of older victims of fraud who may have not just lost some money but have been stripped of their entire life savings, their dignity, autonomy, and financial security.

What motivates you to want to protect elders?
Injustice of any kind makes my blood boil. My grandmother, Pinkie B. Reeves, had a deep sense of justice and acted on it, fighting for the rights of women. She was a public figure, unusual in those days for a woman, much less a Black woman. She used to take me along to her various civic and political meetings and had me recite the Pledge of Allegiance: "...with liberty and justice for all."

Those words are etched in my heart. Naturally, as president of AARP, I become particularly incensed when I see crooks targeting older people. These are our kapuna as we say in Hawaiian - wise elders, the ones who have contributed so much to society, who have worked a lifetime, raised families. It's appalling that they should be victimized by professional tricksters.

At the end of the day, what gives you the most satisfaction about your job?
I feel incredibly blessed that I, acting on behalf of AARP, can be out there in such a public way on issues I feel so passionate about. It's a role I feel I've been preparing for my whole life. Sometimes I just have to marvel that a girl like me, who came up in East St. Louis, can serve our country in this way, crisscrossing the nation, heading up forums, speaking to diverse audiences, meeting decision-makers and reaching so many people. I firmly believe that if we work together, we can bring our will to bear; together we can move mountains; together we have the power to make it better. And together, we can pave the way to a more civil, more openhearted society, which values and respects its wise elders.

Dick Carozza is editor of Fraud Magazine.