Any Older Clients Lonely, Had Life Setbacks?

They are targets for investment scams, which are multiplying fast, and AI will make things worse, says a fraud fighter and FINRA award winner.

By Ed Prince

Elder scams are increasing at a shocking rate, according to the FBI.

In 2020, Americans 60 and older lost $966 million to scammers. In 2022, that number tripled to $3.1 billion.

The explosion of senior investment scams is especially troubling. In 2020 they totaled $98 million. In 2022 the number was $990 million — a 1,000% increase.

Doug Shadel
Doug Shadel

But the situation is worse than the FBI Internet Crime Complaint Center statistics, says fraud fighter Doug Shadel. For four decades, Shadel has battled scammers, first as an investigator with the Washington State Attorney General’s Office and then in a 30-year career with the AARP.

“Any data like that, those numbers are a floor, not a ceiling,” Shadel says, citing AARP research he’s led. “We’ve done studies where we had identified known victims of investment fraud, who have been independently verified, and we survey them and ask them if they’ve ever lost money to a scam, and they say no. In other words, there’s a huge underreport rate.”

Shadel says education is key to fighting the tsunami of elder fraud. But most investor education is flawed because it focuses on scammers’ appeal to greed, instead of their most effective weapon: preying on emotional vulnerabilities, he says.

In recognition of his work on behalf of fraud victims as an investigator, educator, and researcher, Shadel was recently awarded the 2023 Ketchum Prize, the highest honor given by the Investor Education Council of FINRA.

“I was so pleased to get that recognition, because they do as good a job as any organization, warning not just the investment advisors, but the public at large. They funded some of the early studies we did that nobody else would touch where we were engaging psychologists and trying to understand the psychology of persuasion,” Shadel says, referring to FINRA’s support for AARP research. “Nobody in law enforcement was thinking about that 15 years ago, but FINRA said, ‘Well, if it can help, let’s see if it works. Let’s see if consumer education works.’”

Accidental crime fighter

Shadel fell into his fraud-fighting career by accident after he took a summer internship with the Washington State Office of Attorney General. As he was cleaning out his desk at the end of his stint, he was summoned into his boss’s office. “Am I in trouble?” he asked.

“No, actually,” was the reply. “We want to offer you a job in Olympia, but you can only take this job if you can move to Olympia in the next week.”

“And I’m like, ‘Well, I’m single. Sure, I can move there,’” he recalls. “So, I ended up running a street-front consumer protection office in Olympia for about six years. And that also involved investigating scammers. That’s how I got my start. I spent 10 years as an investigator.”

But Shadel became disillusioned with an approach that focused only on catching the bad guys. When they were caught, they simply pulled up stakes and moved their fraud operation to another state, he says.

“This mortgage broker was selling stacked deeds of trust, investments using straw buyers. I gave it everything I had, and two weeks after we sued, he moved to Portland, started another company,” Shadel explains.

“So I went to the AG and said, ‘Is there any way that we could — I could — do consumer education, maybe get to people — to the investor — before the scammer gets to them. And that’s what I’ve been doing ever since.”

After 10 years with the attorney general’s office, Shadel spent 30 years with AARP, serving as the strategy director for the organization’s Fraud Watch Network, which works to educate and protect AARP’s 38 million members. While at AARP, Shadel also developed fraud education curriculum that has been used throughout the U.S. for more than a decade.

“The way you keep energized is by doing what inspires you,” he says. “And it’s something about my personality that when I’m interviewing these people, I just get completely outraged when I see when people lose their life savings to some idiot.”

Scammers prey on fear, emotional vulnerability

Shadel says the nature of scamming has changed over the years. At one time, it was mainly based on appeals to greed. Now the dominant theme is inciting fear and exploiting emotional vulnerabilities.

“I’ve interviewed probably two dozen convicted scammers over the years,” he says. “What we (say) is, ‘OK, you pled guilty, you’re about to go to prison. … Would you like to talk to AARP about how you scammed people? Maybe you’ll get a lighter sentence. … And they actually talked to us. They never get a lighter sentence, by the way,” he adds, chuckling.

Their secret, he says, is finding an investor’s “emotional Achilles heel” by engaging in personal conversation.

“We spend all of our prevention time saying whatever you do, don’t give out your Social Security card number. Don’t give out your credit card number. Don’t give out financial information, which is true,” Shadel says. “But what we should be emphasizing is, don’t tell them anything about your personal life.”

When you talk to a scammer about your life, they’re taking it all down, he says. “Oh, lost a son in Vietnam. Has a disabled granddaughter. And they will use those hot buttons later to get you under the ether, to get you into a heightened emotional state, so that you’re not really thinking logically, and that’s the whole trick,” he warns.

The old saw, “If it sounds too good to be true, it is too good to be true,” is a pet peeve of his. That’s because that advice requires the intended victim to be fully rational and calm when the pitch is made. “It assumes that when you’re being pitched, they haven’t found out what your emotional vulnerabilities are. That you’re not emotionally upset, alone, in need of company. It assumes that your brain is fully engaged, and you remember that tip from when you went to the workshop.

“And that’s just not how they get you. They want you to be as far away from cognitive engagement as possible,” Shadel says.

Mining robocalls for scam tactics

Shadel retired from AARP in December but has continued to work as a consultant, including for Nomorobo, a call-blocking company. In that role, he’s listened to countless recordings of phone scam pitches and noted the change in scam tactics.

“It used to be when we would study tapes in the past — how did they get you under the ether most of the time? It’s, ‘You’ve got a 10-to-1 return on your investment. You’re about to retire. You’ve got to get that 401(k) balance up.’ That’s the promise of gains.”

“But increasingly what we’re seeing is fear appeals. “Oh my God, somebody got hold of your Social Security number. Somebody just hacked into your 401(k) account and they’re about to drain it. They create fear.”

An AARP study Shadel led found that people with multiple negative life events are more vulnerable to emotional manipulation and appeals to fear by scammers. That could make older people more susceptible to scams, he says.

“As you get older, let’s face it, some bad things happen. What do we mean by negative life events? Illness in the family, death in the family, financial hardship, loneliness, isolation, stress. And the victims had experienced twice as many of those.”

“And the theory underlying it is that if you’re coping with some negative life event, that takes up cognitive capacity that you might use to defend against these attacks.”

Tips for advisors

Financial advisors should be on the lookout for signs that a client is emotionally vulnerable to scams.

“If you see someone for example, who is lonely, they’re constantly calling you, that’s a huge risk variable — isolation loneliness. Because who answers these calls? You and I don’t,” he says. “But if it’s the only call you’re gonna get that day, you’d really liked to talk to somebody, you might just start talking.”

Financial advisors need to be aware of the power of appeals to fear and emotional vulnerability, both to protect their clients and themselves, Shadel advises. He recounted the case of a stockbroker who succumbed to pitches to invest in gold coins and penny stocks, even though he knew the dangers.

“I wouldn’t advise my clients to do any of this,” the stockbroker said, according to Shadel. When asked why he did it, he responded, “Well, 58 years old. I’m looking at my accounts, and my daughter’s getting married, and I realize I haven’t saved enough money. And so as I approach my own retirement, I better start taking more risks. As I’m not going to have enough money if I want to retire. I’m not going to.”

“And that plays right into the scammers’ pitches, as you can imagine,” Shadel says. “It’s amazing.”

Crypto crime explodes

In addition to shifting tactics, scammers are using new technology like cryptocurrency and artificial intelligence, Shadel said.

According to the FBI, crypto-related frauds have increased dramatically in three years, totaling $55 million in 2020, $241 million in 2021, and $1.09 billion in 2022.

Scammers have long used gift cards as an untraceable way to get their hands on victims’ money, but they are increasingly turning to crypto for that purpose, Shadel explains.

He cited cases where a scammer has told a victim that their bank account or 401(k) had been hacked and the money should be deposited in a cryptocurrency ATM for safekeeping.

“So people are literally withdrawing $200,000 in cash, $50,000 at a time, and going to a 7-Eleven where the crypto ATM is, opening an account and depositing $50,000 into this ATM machine, thinking that they’re safe, protecting it from hackers,” he says.

AI also is a growing fraud threat, he says, noting the capability to create an artificial duplicate of a person’s voice. He demonstrates the technology during his fraud education classes for senior citizens, recording his voice, and then playing a synthetic version of his voice reading a typed script.

“It sounds exactly like me. I ask the audience, which is me, which is AI, and they cannot tell the difference,” he says.

In a four-decade career in journalism, Ed Prince has served as an editor with many of New Jersey’s leading newspapers, including the Star-Ledger, Asbury Park Press and Home News Tribune.

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