Some investors just can't resist the next big thing, even when there's a chance they'll lose everything, so the Securities and Exchange Commission has been operating fake Internet scams to teach those would-be victims a lesson.

"These websites really look good," said Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations. "They really look like the real thing."

Or, that is, they look like the real, fake thing. It's pretty simple, too. The SEC just sets up a web page that touts some great investment play - most recently, the regulator was promoting a get-rich-quick scheme associated with Hurricane Katrina cleanup - and when people click for more information, they get a message not too different from, "Gotchya!"

But the lesson doesn't stop there, Richards said. The regulator also directs the investor to one of its authentic sites that provides information on how to avoid more dangerous scams. They also try to teach them a few realities about the investing world, particularly that saving for retirement is a long-term effort and money can't be made overnight.

"We've found it to be extremely successful," Richards said during a panel discussion at last week's "The Baby Boom and Beyond Forum," hosted by the North American Securities Administrators Association in Washington.

While the panel discussion also revealed some important insight on educating consumers and marketing to Baby Boomers, the SEC and NASAA used the event as an opportunity to highlight a new joint effort that focuses on protecting elderly investors.

Part of an initiative that, as Richards conveyed, SEC Chairman Christopher Cox asked his staff to begin work on the day he arrived at the regulator last summer, the program is designed to protect seniors from investment fraud and the sale of unsuitable securities. Its three primary components are aggressive enforcement action, targeted exams at intermediaries and active investor education and outreach.

"It's always a terrible thing to steal someone's savings," Cox said during a lunchtime speech at the forum, "but there surely is a special place in Hell for those who would prey on the Greatest Generation, and rip off the life savings of the children of the Depression who defeated Nazism, Fascism and Communism."

To further the effort, Cox announced, the SEC will convene a Senior Summit this summer. The meeting, he said, will bring together every regulator and important organization that has a stake in protecting the elderly from investment scams and advisers who shill inappropriate products. New research from NASD on why seniors fall prey to fraud will also be revealed and closely examined.

Regulators, however, confront a number of hurdles in the fight against fraud on the elderly, the panel discussion disclosed. Chief among them is the fact that they're easy targets, primarily because they matured during an era where a handshake, or a spoken pledge, was good as gold. Some are alone, too, and enjoy the companionship that fraudsters promise.

Also, many victims don't come forward, which makes it tough to nab perpetrators. Richards said many seniors feel partly responsible, while others are simply embarrassed that they were taken. Others still don't know where to turn for help in recovering their assets.

"Despite that reluctance and that dynamic, at the SEC we receive thousands of complaints every year from investors, many of them seniors, and they are terribly tragic tales and the most appalling stories," she said.

The industry is also urged to support the Elderly Justice Act, said Cecil Swamidoss, counsel to the Senate Special Committee on Aging. Introduced late last year by Senator Orrin Hatch (R-Utah), the act would raise the issue of elder abuse, fraud and neglect to a national level like that of domestic violence and child abuse. There are no Federal laws in that area. The legislation is currently in the Senate Finance Committee, and on the House side, it's drawn 27 co-sponsors and is in committee, as well.

While the bill contains key provisions for training and educating elderly investors, it also targets financial services professionals, regulators and law enforcement officials who aren't familiar with the attitudes of seniors.

"I would recommend that you call your legislator and support this bill," Swamidoss said.

But seniors aren't the only consumers who are susceptible to con artists. Thus, the panelists noted, there are few issues confronting the financial services industry that deserve greater attention.

"These people are dirt bags, and they hurt the industry terribly," said Marc Lackritz, president of the Securities Industry Association, a New York trade group that represents mostly intermediaries. "We are in complete common cause with state regulators, the SEC and SROs to get these dirt bags out of the business."

Lackritz pointed to the mutual fund scandal of three years ago as an example of how one bad apple can spoil the entire barrel. In that case, a few shady characters allowed market timing and late trading to occur and nearly brought down entire fund complexes, not to mention incurring irreparable damage to long-term shareholders.

Fraudsters, quite frankly, also steal business from the honorable side of the industry. Not only do they sometimes take away longtime clients of a fund shop or intermediary, but also once the money is gone, so are their investable assets.

"We have a huge incentive to make sure that these sorts of people are sent away for hard labor for a long, long time," Lackritz remarked.

Matt Thornhill, founder and president of The Boomer Project, a Richmond, Va.-based marketing and consulting firm, said that addressing the industry's alphabet soup of investment plans and adviser certifications would be a good start. He thinks people - Baby Boomers in particular - are becoming too easily confused. So they either fall prey to someone whose credentials seem authentic but are actually bogus, or they throw their hands up and don't invest at all, which is nearly as foolish.

"Why call a college savings plan a 529 plan?" he asked. "IRA, 401(k), Roth, annuitization....Clarify your message."

But to call the financial services industry neglectful when it comes to educating consumers is wrong, Lackritz replied. Legislators are to blame for the 18 different tax-adjusted savings plans that exist, not financial services firms. And as an industry, financial services produces thousands of pages of educational material every year. That comes on top of "excellent" investor education programs from the SEC and the U.S. Treasury, he said.

"So, there must be a disconnect someplace," said Lackritz, who added that the SIA currently has a task force researching ways that might bring all tax-adjusted savings plans under one, universal name. "We just have to keep pounding the message home and find an effective vehicle for delivering the message."

Thornhill said the industry could compel more Boomers to learn about smart ways to invest if they simply took a page from their sales handbook. For example, Boomers don't like to be scared into anything, so negative advertising is a no-no. So instead, highlight the fact that they might not be able to control the future of defined benefit plans or Social Security, but they can control their nest egg.

"And financial services firms can help them gain more control," he offered.

(c) 2006 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.