Last Updated Oct 22, 2009 5:44 PM EDT
The Securities and Exchange Commission charged four individuals today in a continuing crack-down on promoters who use "free" lunch and dinner seminars to lure seniors into risky, inappropriate, unregistered and, sometimes, fraudulent investments.
The agency said that three brokers at Advanced Planning Securities and Oldham Harris Inc. worked hand-in-hand with a real estate promoter named Charles C. Slowey Jr. to host free lunch and dinner seminars in the New York area, aiming to lure unsophisticated retirees into speculative investments in distressed real estate.
In a complaint filed in federal court in Brooklyn, the SEC charged that the brokers sold unregistered securities and didn't do the proper due diligence to determine whether Slowey's investments were viable for their clients. The complaint also says that Slowey misappropriated more than $1 million of investor assets for his own use, taking a no-interest personal loan to buy his own home, for example.
Roughly 90 seniors bought into the deal, losing $12 million in the process, according to the SEC. Attorneys for the defendants in the case either declined comment or failed to return phone calls prior to press time.
"These men used these supposed educational seminars to entice retirees with misrepresentations and convince them to invest in risky real estate ventures," said George S. Canellos, director of the SEC's New York regional office in a statement. "And while those ventures were losing money, Slowey helped himself to investor funds to buy real estate of his own."
In the past three years, the SEC has brought nearly 70 similar enforcement actions against companies targeting elderly investors, often by buying them a meal, said Chairwoman Mary Schapiro. The agency started focusing on free-meal presentations two years ago, when regulators conducted a joint examination of these "informational meetings" and found they were thinly disguised sales presentations for speculative and suspicious investments.
That examination, which involved some 110 securities firms and was jointly conducted by the SEC, the Financial Industry Regulatory Authority and the North American Securities Administrators Association, found that:
- 100% of the free-meal seminars, most of which were advertised as "educational" workshops where "nothing will be sold," were nothing more than sales presentations that were designed to result in the sale of investment products either at the meeting or afterwards, through follow-up contacts with attendees.
- 50% featured exaggerated or misleading claims, such as "immediately add $100,000 to your net worth" or "receive a 13.3% return."
- 23% involved unsuitable investment recommendations, where "conservative" investors were told to buy risky or illiquid investments.
- 13% involved apparent fraud and were referred to regulators for enforcement action.
Today's move should be a wake-up call to seniors. The message you should draw when getting an invitation to a free lunch or dinner seminar? There's nothing quite as costly as a free lunch.