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Con artists’ old tricks

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Times Staff Writer

Walter Kincherlow Sr., 69, never expected to retire a millionaire. But during his 29 years as a maintenance worker, he managed to sock away more than $80,000. He invested pretty well too, until an “estate planner” took a look at his portfolio while updating his living trust and clucked that Kincherlow’s investment returns were paltry.

Claiming that Kincherlow could earn 20% per year safely, he persuaded the widower to pour his life savings into real estate investments with an El Segundo investment firm called Jon W. James & Associates. Kincherlow said he was assured that his principal was safe. But signs of trouble emerged when he wanted to start spending some of his savings. Then, company managers either couldn’t be reached or talked him out of withdrawal, he said. Meanwhile, they tried to persuade him to secure a huge home equity loan to invest even more.

Securities regulators filed an emergency action last summer to shut down the firm, which they claimed was operating a $22-million fraud. James maintained in legal filings that the company’s investments simply had insufficient time to pan out. In any event, a court-appointed receiver says investors are owed about $13 million, but the company has less than $4 million in assets to repay investors.

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“They’re telling me that I might end up with $6,000 or $7,000 out of all of the money I invested,” said Kincherlow, who now lives in Victorville. “I wish I never had done this.”

He has plenty of company. More than 200 investors are in similar straits with Jon W. James & Associates, and that’s just the tip of the iceberg.

About 5 million seniors are victimized by some sort of financial fraud each year, according to the Securities and Exchange Commission. California law enforcement authorities believe that about a million of those victims live in the Golden State. Fraud against seniors is rising, experts add, but precise numbers are impossible to come by, partly because authorities believe that only 1 in 5 such frauds are ever reported.

The tragic part: Once a senior gets taken, there’s little chance he or she will ever get the money back. And experts maintain that most of the fraud is easily avoided.

Karen Liebig of Torrance runs a nonprofit group called the Keep Safe Coalition. Its mission is to arm seniors with the information necessary to protect them from scams. They go everywhere: convalescent homes, senior centers, libraries, bridge clubs. Anywhere seniors gather and might want information about the hallmarks of elder abuse -- financial or physical -- will draw Liebig and her reams of tip sheets and little giveaways, such as pens and whistles with a message: “Blow the whistle on fraud!”

With PowerPoint presentations and gentle talks, she explains to people like Kincherlow that there is no such thing as a “safe” or “guaranteed” investment that pays 20% annually. She cajoles them to beware of “trust officers” bearing investment advice. She pulls in district attorneys and detectives to talk about salesmen who are willing to take seniors to the store and run errands for them as a way of gaining their trust before they sell them investments that could bankrupt them.

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“We have a case now where the girlfriend of the grandson served as a caregiver and she’s taken money out of this woman’s account; she’s taken home equity loans in her name,” Liebig said. “The lady, who is in her late 80s or 90s, is never going to get her money back.”

More than anything, Liebig urges seniors to seek help when they’re being pressured to buy something and report it when someone takes advantage. And she counsels friends and family members of older folks living alone -- the most vulnerable targets -- to keep in close touch and look for telltale signs of trouble.

Just as you watch the people your teenagers hang out with, friends and relatives of senior citizens should be watchful when the senior takes up with new caregivers and friends. They should also worry if the family’s “lost soul” takes such good care of grandma that everybody else loses contact.

“We have had immediate family members, who are in line to inherit the money anyway,” said Det. Sgt. Peter Grimm of the Redondo Beach Police Department. “But the greed factor kicks in, and they say, ‘I want it now.’ ”

That’s one reason seniors are such attractive targets, officials say. Because they’re embarrassed or infirm or have such a close emotional connection to the con artist, they’re far less likely to report and pursue prosecution of the criminal. They’re also, demographically, a wealthy group, holding billions in assets and home equity.

“It’s just like Willie Sutton,” said Donn Hoffman, a Los Angeles County deputy district attorney who prosecutes cases of elder abuse. Crooks “go where the money is.”

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Many of the crimes that affect the elderly are scams that can hit people of any age: identity theft, bogus lotteries, “free” gifts that require you to send money for shipping and Ponzi schemes that use new investor money to pay off old investors until they run out of victims and the schemes collapse.

The company that Kincherlow fell prey to didn’t exclusively target seniors, just retirement assets. But he was nabbed through a “trust update,” a common gambit aimed at seniors. Although living trusts can help avoid probate, state securities authorities maintain that con artists establish “trust mills” to simply get a good look at a senior’s assets. They then convince the victim that their investments are either too risky or too low-yielding, and talk them into buying bogus or unsuitable investments that pay off for the broker while they impoverish the client.

The same technique is frequently used to sell seniors into variable annuities, which pay high commissions to the brokers, but can lock the investor’s money up for decades.

Although these investments arguably are viable for younger individuals, they’re almost always unsuitable for the over-70 set, to whom they’re often sold, Hoffman said.

Riffling through pending investigations on his desk, Hoffman pulled out three involving the sale of annuities to elderly individuals and couples.

In one, a 74-year-old woman who told her agent she needed regular income from her investments was sold an annuity that provided no regular income. If she pulls money out during the next 10 years, she’ll lose 20% of her principal to “surrender” penalties.

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A similar case involved a couple in their late 60s who were both in ill health with diabetes and heart disease. Instead of an investment that would generate the income they needed to buy medications, they got an annuity that doesn’t provide access to their savings until the husband turns 98.

In the third, a 71-year old woman with Alzheimer’s was befriended by an agent who talked her into transferring her investments into annuities. She lost $30,000 to surrender fees on the first transfer and lost access to her money.

“I didn’t dig through the complaints looking for the good ones,” Hoffman said. “These are just typical.”

Some frauds are tailor-made to ensnare senior citizens.

Consider, for example, the “nephew scam” that hit dozens of South Bay seniors. Someone would call with a friendly greeting such as, “Hi, Auntie! It’s your favorite nephew. You remember me, don’t you?”

The older person, often hard of hearing and not wanting to admit he or she might have forgotten a relative, would volunteer something along the lines of, “Is that you, Johnny?,” giving the con artist a name to work with, Liebig said.

The bogus nephew then says he’s at a local airport on his way to a business meeting but just got robbed and doesn’t even have cab fare. The “favorite aunt” is asked to lend him a substantial sum, which will be picked up by one of the nephew’s associates and repaid promptly. Naturally, neither the money nor the “nephew” is ever seen again.

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Although this “nephew” is a bogus one, Liebig said, too often seniors are taken by their own relatives. Adult children, grandchildren, nieces and nephews can perpetrate identity fraud or mortgage fraud or simply raid the senior’s bank account.

Although experts can tell seniors to be cautious of telemarketers and strangers offering investment advice, it’s difficult to warn them about their own families.

“We tell people that we’re not trying to scare them, but if someone is attempting to isolate them from other friends and family members -- if they take your mail -- you’ve got to be cautious no matter who they are,” Liebig said.

On the bright side, regulators of all stripes are paying more attention to fraud against seniors.

Many states, including California, have passed laws to stiffen penalties for defrauding seniors, whether through Ponzi schemes or simply recommending unsuitable investments. Police departments and district attorney’s offices in many major cities all over the country have launched units focused solely on senior abuse.

California insurance regulators are contemplating new rules that would impose stricter standards on the sale of variable annuities to anyone over age 65. The Securities and Exchange Commission has been investigating companies offering “free lunch” seminars, which are often used to lure elderly investors. And the SEC has teamed up with the National Assn. of Securities Dealers and AARP to host a “senior summit” next month aimed at getting regulators, law enforcement and community groups in the same room to find ways to combat senior fraud.

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In the meantime, Liebig said, seniors need nosy neighbors to protect them.

“If there was somebody that used to sit on the porch and waive at you every day and you don’t see them for a while, you need to knock on the door and check on them,” she said.

If you suspect there’s something wrong, call local law enforcement or adult protective services, she added.

kathy.kristof@latimes.com

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(BEGIN TEXT OF INFOBOX)

Signs of trouble

About 5 million seniors are victims of financial fraud each year, according to the Securities and Exchange Commission. California authorities estimate that 1 million of those victims live in the Golden State. Red flags include:

“Garanteed” investments that pay double-digit returns

Any investment that promises to pay more than a certificate of deposit or Treasury bill bears substantial risk. Most “guarantees” offered on high-return investments aren’t worth the paper they’re written on.

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Living-trust officers bearing investment advice

Regulators maintain that many companies that update living trusts are really just seeking a close look at a senior’s portfolio to sell them high-cost and, often, inappropriate investments. Buy legal advice and investment advice separately. Not sure if you need a trust? Contact Healthcare and Elder Law Programs Corp., a nonprofit education and counseling group, at (310) 533-1996 or www.help4srs.org.

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Free lunch seminars

Securities regulators say seminars offering seniors a free meal are too often come-ons for high-pressure salespeople to pitch annuities that can lock up your assets for decades, while paying huge fees to the salesperson. You can go to lunch, but don’t invest until you’ve had a savvy friend or impartial investment advisor review the prospectus or offering circular. If the salesperson says the “opportunity” can’t wait for you to examine the details, pass it up.

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“Free gifts” and foreign lottery winnings

If you need to send a payment for “postage” or “taxes,” you haven’t won a “free gift” or a foreign lottery, you’re being reeled in on a scam. Your winnings won’t arrive; and you’ll lose the amount you sent -- or more. Some crooks use these scams to steal your banking information.

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E-mailed bank “updates,” IRS refund notices and “account warnings”

Your banker, the federal government and even PayPal are not going to ask you to update your account information by clicking on a link in an e-mail, but a con artist wanting your credit card numbers or Social Security number to commit identity theft will. Don’t click through. If you think your banker needs to update your account information, call your bank directly. If you’re wondering about a federal tax refund, contact the Internal Revenue Service at (800) 829-1040 or www.irs.gov.

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Relatives and caregivers who take your mail or isolate you

Relatives and caregivers are often a tremendous help, but some bad apples take advantage of their trusted positions to commit identity theft and steal from seniors’ bank accounts. Beware of anyone who discourages you from seeing others or who won’t let you see your mail.

all for help

Seniors who are concerned about a caregiver, or friends or neighbors who worry that a senior may be in trouble, should call their county’s adult protective services agency. In Los Angeles County the numbers are (888) 202-4248 and (877) 477-3646.

-- Kathy M. Kristof

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