Remarks at the SEC Seniors Summit

Mary L. Schapiro
Chief Executive Officer, FINRA
September 10, 2007

Mr. Chairman, there is no doubt financial fraud aimed at older Americans is real. Results from a recent FINRA survey confirm this disturbing fact.

Of the 55 percent of respondents who said they lost money on an investment, 19 percent—almost one in five—attribute that loss to being misled or defrauded.

While this is cause for concern—it's also an opportunity for creative collaboration by regulators.

With the financial well-being of millions of seniors at stake, FINRA is dedicated to tackling this issue on multiple fronts.


FINRA's Enforcement Division is one of our most critical tools when confronting fraud against seniors. Currently, FINRA has many open investigations that involve seniors or senior-related issues.

Under a new case management protocol, these cases will be given priority handling to expedite their resolution.

As I speak to you today, FINRA, in addition to participating in the "free lunch seminar" sweep, is conducting sweeps in four separate issue areas. Two of the sweeps are new and being discussed publicly for the first time today. Allow me to describe them briefly:

The first sweep is aimed at the use of inflated or meaningless professional titles by advisers who are seeking to lure seniors into thinking they are experts in retirement planning.

The use of so-called "professional" designations is becoming an increasingly common device used to entice investors to open an account.

The unfortunate truth is that seniors can be susceptible to these tactics. Our research shows that some seniors are more likely to listen to pitches from people with such designations.

We at FINRA are deeply troubled by this development and I want to return to that in a moment.

The second new sweep targets deceptive early retirement seminars, often relying on IRS Regulation 72t, which permits early withdrawal from a retirement account without the usual tax penalty.

These programs pressure individuals who are still working to move their retirement assets to a specific firm or representative, often promising unrealistic returns on an investment through the use of misleading projections.

In the past year, FINRA has fined two firms $5.5 million and ordered them firm to pay $26 million in restitution related to early retirement investment schemes aimed at Exxon and Bell South employees.

A third sweep is examining the sale of collateralized mortgage obligations, an area where there appears to be a significant push to sell these complex and risky products to seniors.

The fourth sweep is focused on the sale of life settlements. FINRA is conducting the sweep with a particular focus on suitability, disclosure, fee and supervision concerns.

As always, FINRA is constantly on the lookout for possible new venues to pursue vigorous enforcement.

Regulatory Initiatives

While enforcement is a valuable tool, as a regulator, FINRA's ultimate goal is to prevent instances where older investors are mistreated by financial professionals. We believe the most effective way to do this is by stressing to firms directly their obligation to deal with senior customers in an honest and open manner.

Today, FINRA sent to all firms a regulatory Notice which underscores this need.

The Notice addresses practices related to a wide range of issues for firms to consider when dealing with seniors.

Before any product is sold to a senior, it must be determined to be suitable for that individual.

Firms should ask detailed questions and find out how much income the customer needs to meet common expenses such as a mortgage or health care needs.

They also need to work closely with the customer to determine how important it may be to keep their investment liquid in case emergency or short-term needs arise. The Notice also expresses FINRA's concern about the proliferation of professional designations. The unfortunate fact is that some designations can be obtained simply by paying membership dues to an organization with an impressive sounding name.

Too many times these designations mean absolutely nothing. Seniors put their trust in these individuals and are led down a path of financial ruin. In the Notice, FINRA reminds firms that using any title or designation that conveys an expertise in senior investments or retirement planning where no such expertise exists could open firms up to enforcement action.

On this topic, we agree with our colleagues that a specific regulatory response should be considered with respect to senior designations.

But, it should be clear that under FINRA rules that currently exist, it is a violation to use designations in a way that is misleading. And, brokerage firms have a current duty to supervise the use of designations by their employees.


Enforcement and regulation are two very important weapons FINRA uses to fight fraud.

But I believe one of our strongest weapons is education. In this area, FINRA has marshaled significant resources

Today, because my time is limited, I will just mention one of our latest initiatives.

I'm pleased to announce that FINRA is launching a broad, new educational program aimed at informing human resource professionals and unions about the risks of fraudulent early retirement seminars.

Both of these groups are in a position to influence employee attendance and receptivity to these seminars and strategies—and to get the word out about the potential risks they hold to retirement security.

The campaign will be funded from fines levied against firms engaged in improper early retirement seminars.

Before I close, I'd like to address seniors directly.

To them I would say this: Financial security is possible when investing with the help of an investment professional who has your best interest at heart.

But if ever you are on the receiving end of something that sounds too good to be true, or if you have been taken in by fraud—tell FINRA, the SEC or your state regulator.

Seventy-eight percent of older investors who have been defrauded never reported it.

Thank you for convening this important meeting, Mr. Chairman.

I look forward to working with you in the days ahead.