Manhattan U.S. Attorney Geoffrey S. Berman Delivers Keynote Address at SEC and Fordham University School of Law Conference on Combatting Elder Fraud and Other Community-Based Financial Fraud

Thank you for inviting me to speak today.  It is a pleasure to be here with all of you at an event focused on the important topic of avoiding community-based financial fraud.

Community-based, or “affinity” fraud, works precisely because fraudsters—like the Goldstein brothers—know their audience.  Whether preying on vulnerable populations, or using painstaking research to pass themselves off as members of their targets’ ethnic group, faith community, or dating pool, these victimizers prey on people’s trust and kindness for profit.  It’s a growing problem and one that has rightly become a law enforcement priority.  This afternoon, I’m going to talk to you about elder fraud, as well as some other types of affinity fraud, what my Office and the Department of Justice are doing to combat them, and strategies that you and your clients can use to avoid becoming victims.   

Elder Fraud

Fraud against our nation’s elders is a particularly egregious category of fraud and the one that I’ll spend the most time discussing today.  Hopefully none of you or your friends, family members, or associates have been victimized but the odds are that, with a crowd this size, at least some of you will have some personal experience with fraud – or attempted fraud – against elders. 

There are numerous and varied financial scams targeting elders.  Some are quite basic and others are more sophisticated.  Either way, the impact can be devastating.  The amount of money that older adults are losing each year to financial scams is staggering.  Loss estimates are in the billions.  And financial loss is not the full measure of the loss from these scams – there are often physical, mental, and emotional costs to victims and to their families as well.

Let’s talk about the different types of elder-targeting financial scams, what the Department of Justice and my office are doing to try to combat this problem and protect our elders, and what elders and those who come in contact with them can do to guard against elder fraud. 

By way of some background, on October 18, 2017, the Elder Abuse Prevention and Prosecution Act was enacted to address the serious problem of elder abuse in our country.  (A word on terminology: for purposes of the Act, an “elder” is defined as 60 or older and “elder abuse” is defined to include abuse, neglect, and exploitation of an elder – and that includes the financial as well as the physical.)  The Act contains important provisions relating to, among other things, the support of federal elder justice cases, improved data collection in the area of elder justice, and assistance to the victims of elder abuse. 

Part of what the Act did was mandate that there be a designated Elder Justice Coordinator for the Department of Justice and that there be at least one Elder Justice Coordinator in each of the 93 United States Attorney’s Offices across the country, including my office.  The Elder Justice Coordinators in the United States Attorney’s Offices serve as in-house legal counsel on matters relating to elder abuse; prosecute and assist in the prosecution of elder abuse cases; ensure the collection of data required to be collected under the Act; and conduct public outreach and awareness activities relating to elder abuse. 

The Act also mandated the establishment of a working group to provide policy advice to the Attorney General on elder abuse.  And, the Act required regular and comprehensive training of FBI agents in the area of elder justice.  The FBI is deeply committed to addressing the problem of elder abuse, as are numerous other federal, state, and local law enforcement agencies.

For many years, there have been elder justice prosecutions and prevention efforts here in New York and across the country – sadly, the exploitation of elders is not a new problem.  Following the passage of the Act, the Department of Justice has redoubled its efforts at combatting this problem.  DOJ has devoted significant attention and resources to preventing elder fraud and abuse and to prosecuting crimes against elders, under its Elder Justice Initiative.  Over the past two years, the Department has conducted targeted sweeps aimed at focusing resources against those who defraud America’s seniors.  Those sweeps have collectively resulted in criminal and civil criminal and civil actions against more than 500 defendants responsible for defrauding over 1.5 billion dollars from at least 3 million victims. 

If you have not yet visited DOJ’s Elder Justice Initiative website, I encourage you to do so.  The address is www.elderjustice.gov – it is a publicly accessible website that contains information that I think you will find useful and that you might want to pass along to people in your organizations, to your clients, and to the elders in your life.  Among other things, the site has contact information for various Government and non-Government resources, including information on how to report financial fraud against elders. 

On the website, you will also find descriptions of different types of financial scams targeting elders.  To mention just some of the ones we are seeing in my office and across the country: grandparent scams, romance scams (which I’ll talk more about later), tech support scams, mortgage scams, mass marketing scams (for example, foreign and domestic sweepstakes and lottery scams), IRS scams, and investment scams.  And new scams tend to pop up over time. 

Not only is there variety in the types of scams we are seeing, there is also variety in the categories of scammers.  To name just some of the categories: family members; neighbors; friends; caregivers; trusted advisors (bankers, lawyers, accountants, investment advisors/brokers, tax preparers); Powers of Attorney, guardians, and conservators; and affinity group members. 

So what are we doing about the proliferation of financial fraud against our senior population?

Elder fraud is an area where prosecution of appropriate cases is vitally important and where public outreach and education are at least as important.  My office and DOJ are taking a two-pronged approach: prosecution and prevention. 

Prosecutions are important for several reasons: (1) prosecutions hold responsible those who cause harm to elders; (2) prosecutions also bring some justice to victims, including sometimes enabling them to obtain at least some restitution; (3) along with targeted sweeps, prosecutions can deter people who might otherwise be inclined to try to defraud elders; and finally (4) prosecutions raise awareness about financial scams targeting elders, which can thwart future crimes. 

In the last couple of years alone, my office has handled some significant prosecutions involving crimes against elders.

By way of one example: My office partnered with HSI and NYPD to prosecute 17 defendants for federal crimes arising from their participation in a telemarketing fraud scheme targeting the elderly, many of whom were over 70 years old.  The scheme involved luring victims into making “investments” in so-called online or work-at-home businesses.  The payments were purportedly made for business development, website design, grant applications, and tax preparation services but in fact, the scammers simply stole the victims’ money.  When some victims sought refunds and contested their credit card charges, the scammers falsely represented to the credit card companies that the victims had received the promised services.  The people my office prosecuted played important roles in the telemarketing scheme: several were founders and owners, others were sales managers and trainers, and some were telephone salespeople who told egregious lies directly to victims and sold them the worthless products and services.  In some cases, when a victim would become heavily in debt due to the scheme, the salespeople would try to sell the victim on a debt settlement service that cost them even more.  The losses associated with the defendants’ scheme exceeded approximately $10 million.  All of the defendants sentenced to date have received sentences of imprisonment (up to 87 months) and collectively have been ordered to pay several million dollars of restitution and forfeiture. 

In another example of egregious criminal conduct, my office prosecuted several members of a criminal enterprise based in Ghana that was involved in defrauding more than 100 American businesses and individuals of more than $10 million through business email compromises and romance scams that targeted the elderly.  The romance scams succeeded because the criminals took advantage of particularly vulnerable older men and women, such as those who lived alone or had recently lost a spouse or child, and who were susceptible to being contacted by someone who pretended to take an interest in them.  These were long cons; the scammers gained the trust of the victims over time through countless emails, text messages, and messages through online dating websites, in order to delude them into believing they were in a romantic relationship with a fake identity assumed by members of the criminal enterprise.  Often, the scammers also posed as members of the U.S. military or humanitarian organizations working abroad who were in need of help.  In order to appear more legitimate, the scammers also introduced the victims to other individuals who assumed fake identities and purported to be, for example, consultants or lawyers.  Once the scammers had gained the victims’ trust, they used false pretenses to cause the victims to wire money to bank accounts controlled by members of the criminal enterprise.  And the fraud did not end there.  In addition to stealing the elderly victims’ money, the scammers also used false pretenses to cause the victims to receive funds in their own bank accounts, which, unbeknownst to the victims, were fraud proceeds, and to transfer those funds to other accounts under the control of members of the criminal enterprise.  In other words, the members of the criminal enterprise used their network of elderly victims across the country to launder money stolen from other victims.  The stolen money was then transferred from the bank accounts of victims to the bank accounts of mules working for the criminal enterprise and ultimately transferred to the leaders of the enterprise based in Ghana.   

One of the dozens of victims in this case was a woman in her late 60s who lived alone and whose husband and son had recently passed away.  She responded to a newspaper advertisement and ended up speaking with a man who purported to be a single father with a nine-year-old daughter whose wife had been killed in a car accident.  After speaking with the man for an extended period of time, talking to someone who posed as the man’s daughter, and receiving pictures of the man and his daughter, the victim began to trust the man.  He convinced her to send large sums of money to him, claiming that he and his daughter had gotten into trouble during a trip in Ghana related to his work as a gold dealer and needed help getting back to the United States.  The victim ended up sending over $800,000, including money she obtained from mortgaging her house.  She thought the money was going to a man who desperately needed her help in order to get back to the United States to see her, when in fact her money actually went to three members of the criminal enterprise living in the Bronx.  My office successfully prosecuted these men; sentences for two of the three were in the four-year range.  In her victim impact statement to the court, the victim said: “I have always lived a very modest life and worked hard and saved.  [This has] destroyed my life.  I had never heard of this kind of fraud and couldn’t believe someone could do this to me.  I could lose my home.”   

My office handled another case which, while differing in scale from the ones I just described, also involved disconcerting criminal behavior against elderly victims: An elderly couple was contacted by someone claiming to be their family friend—and had done enough research to pull it off.  The person impersonating the friend told the couple that he had been in a car accident that had caused the death of a pregnant woman’s unborn child.  The impersonator told the couple that he had been arrested and needed the couple’s help with bail.  He told the couple not to call his parents because he did not want his parents to know what had happened.  The couple did as he requested, kept quiet, and the next day sent $7,000 cash to a Bronx address that the impersonator had provided.  The couple then received another call.  This time it was from someone claiming to be their friend’s lawyer.  The purported lawyer told the couple he could make the case against their friend “disappear.”  All they needed to do was send $12,000 to the lawyer so that he could pay off the prosecutor.  That day, the couple received more calls from the purported lawyer, from the impostor, and even from someone claiming to be the prosecutor.  Fortunately, the couple became suspicious.  They called their friend’s parents and learned the truth – that this was a scam.  The couple’s next call was to law enforcement.  The NYPD, working with the FBI, acted promptly.  Dressed as a FedEx delivery worker, an NYPD officer delivered the $12,000 to a man, who was then placed under arrest.  In his wallet at the time of arrest was a fake ID with the couple’s friend’s name on it.  The man was charged by my office, pled guilty to a conspiracy charge, and was sentenced to eight months in prison.  Sadly, these sorts of schemes are all too common and monetary losses in some cases are far greater than they were here.  

I am very proud of the work that my office has done to bring to justice those who prey on our nation’s elders.  But prosecuting individual cases is not all that we are doing to address this serious problem.  My office has also conducted public outreach and education.  For example, earlier this year, my office partnered with the Postal Inspection Service and the SEC in staffing an information table at Grand Central Terminal.  Over the course of several hours, my office’s Elder Justice Coordinator spoke with members of the general public – listening to their experiences with elder fraud and abuse and providing information and resource materials on elder fraud and abuse.  The information was very well-received.  We have also sought out opportunities—like this one—to discuss elder-fraud related issues with key audiences. 

Our goals in doing public outreach and education have been (1) preventing future crime, by getting the word out to the public about what to look out for; (2) if a crime is committed, ensuring that victims report the fraud; and (3) helping those who have been defrauded get the assistance they need. 

It is clear to us from our interactions with the public that elder fraud is a topic of concern for people across all walks of life.  But elder fraud is an underreported crime, for several reasons. Victims sometimes don’t realize they have been victimized; sometimes they realize they have been defrauded but are too embarrassed, ashamed, or even afraid to do anything about it—in at least one instance that my office has encountered, an elder-fraud victim continued to send money to the man defrauding her even after the FBI had met with her to alert her to the scheme.  And, of course, sometimes victims simply don’t know where to turn to report fraud and/or to seek help.  We hope that by raising public awareness around this issue, there will be better reporting of crimes against elders and that victims will get the help they need.

What can you – and the elders you are in contact with – do? 

For those of you who come in professional contact with elders – as clients or otherwise – listen to them; observe how they are presenting to you; and observe how their representatives are interacting with them and with you.  Social isolation and cognitive impairment are two big risk factors for becoming a victim of elder fraud.  You might be well positioned to see red flags in these areas before they lead someone to fall for a scam.  You might also be well positioned to detect if a so-called trusted advisor is acting outside the interests of your elderly client. 

You can also talk to the elders you come in contact with about the specific frauds I mentioned.  It may not occur to a doting grandparent that someone would even think to impersonate a grandchild to try to steal money from the grandparent.  Or that someone would impersonate an IRS employee in order to steal money.  You can also talk to the elders you encounter about the victimizer categories I mentioned earlier.  It may not occur to someone that a family member or someone like an accountant or financial planner might be trying to take advantage of them.  Recognizing a scam for what it is can go a long way in preventing victimization.  Knowing that even when one has been victimized, he is not alone in having fallen prey to a certain type of scam can also go a long way in how a victim copes with and responds to having been defrauded. 

Even very basic advice can be invaluable.  Telling your older clients that if something that is being pitched to them aggressively sounds too good to be true, it likely is not true might very well save someone from investing – and losing – her life savings.  Reminding your older clients to discard financial information in a safe way – by shredding rather than simply placing in trash or recycling bins – can also go a long way.  So too can reminding them not to give out personal information over the phone or via email.  And encouraging older clients to reach out to a trusted person if they think something is suspicious can help to prevent victimization.  Often, the first that the family of an elder victim will hear that their family member has sent large sums of money to a fraudster is after the money is long gone.  My office has made a point of prosecuting defendants who enable elder fraud by laundering fraudsters’ proceeds—and we have sometimes been able to recover money for victims.  But it is not easy to do in many cases.  When the co-conspirators are overseas – often it is not possible at all.  In sum, anything that can be done to empower elders to help protect themselves is welcome. 

Romance Fraud

Of course, community-based fraud is not limited to elders.  I cited an elder victim of romance fraud earlier.  Such scams target people of all ages and draw on the vast reservoirs of information available online and social media to lure and deceive victims.  Decades ago, an aspiring romance fraudster would have had to fool a victim in person.  Today, the proliferation of online romances has empowered aspiring con artists to deceive multiple victims simultaneously from the anonymous comfort of their computer or phone.  The FTC reports that last year alone more than 21,000 victims lost more than $140 million to romance scams. 

My office recently prosecuted a five-man romance-fraud crew, which created fake profiles on dating websites and used those profiles to trick victims into providing money and gifts—often in exchange for promises of a continued relationship.  The defendants crafted elaborate online identities, tailored to allay any suspicions.  After engaging with victims for weeks, the defendants would ask for money, typically claiming they needed it to travel to see their victims and take their romance to the next stage.  Once a victim paid, the defendants would come up with new explanations for why more money had to be sent—in one instance for alleged “lawyer’s fees” to recover diamonds seized at the airport.  Moved by compassion and excitement for a nascent “relationship,” victims wired money time and again.  Eventually, HSI caught on to the crew’s scheme and my Office charged them with wire fraud and money laundering.  Working in close coordination with HSI, we were able to identify seven victims, who had collectively paid more than $1,000,000 to the crew.  Last year, the lead defendant was sentenced to 57 months’ imprisonment.

As with elder fraud, there’s work to be done in educating the public about romance scams.  Our casework and FBI guidance point to some simple steps that your clients can follow to avoid falling prey to fraudsters:

• As always, be careful about what you post online.  Your personal details and social media presence can be harvested by scammers looking to use that information to craft a persuasive fraud.  The person you met online who just happens to share your love for Albanian food and German opera might just be repeating what they saw you post on Instagram. 
• Research anyone you meet online to see if their profile picture or other material has come from elsewhere on the Internet.   If someone’s profile picture is the spitting image of Tom Cruise, it’s safe to say that the person really is involved in Risky Business.    
• And a big one: Be wary of anyone who asks for your financial information or for you to send money for any reason.  Let someone else pay for them to get their diamonds back at the airport. 

Ponzi Schemes

As some of the examples I have discussed suggest, the Internet has vastly expanded the resources available to aspiring affinity fraudsters.  But, of course, community-based fraud doesn’t only live online.  More than a decade after the Madoff prosecution—and a century after the notorious Charles Ponzi deceived prospective investors looking for a sure-fire return on postal coupons—my office continues to see a steady stream of Ponzi schemes, in which charismatic financiers abuse their clients’ trust to line their own pockets. 

By way of example, last year, my office charged one such fraudster who preyed on the naiveté of both young and old clients to induce more than 275 victims to invest more than $57 million in a series of ill-fated real-estate projects.  The defendant told an array of lies to his victims—claiming, for instance, that investments were tied to particular attractive properties, only to siphon money away for his own purposes.  In classic Ponzi-scheme style, he also used investor funds earmarked for the development of one property to pay the monthly interest payments to earlier investors in that same property or in other real estate projects he was pursuing.  Even as his house of cards began to collapse, the defendant continued to solicit investments and offer rosy prospects of profit. 

As is so often the case with Ponzi schemes, the defendant’s fraud left devastated victims in its wake.  A young couple lost the vast majority of their savings; another lost a half million dollars they’d earmarked for their children’s education; and an array of elderly victims lost their life savings, which, as one victim noted in connection with sentencing, represented “his safety net for illness and disability.”  The defendant was sentenced to six years’ imprisonment.  But while my office was able to help hold him accountable for his brazen fraud, some of his victims’ losses can never be repaid. 

Here, too, I can offer a few words of advice for you and your clients, none of which should come as a surprise to the people in this room:

• Always look gift horses in the mouth.  If something looks too good to be true, it probably is.
• Be sure to do your due diligence.  No matter how credible a marketer seems, how entrenched in your community they are, or how well you know them personally—there’s no substitute for careful research.
• On that note, always get an unbiased third party’s advice before making an investment decision.  Affinity fraudsters are hoping you’ll let your trust in them overcome your better judgment.  An impartial set of eyes and ears can be your best defense. 

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          These are just some of the community-based frauds that my office and the Department of Justice are working to prevent and counter.  As the cases I have discussed demonstrate, community-based fraud is all the more troubling because its perpetrators prey on the better angels of our nature—our trust, faith, and even love.  The Department of the Justice and the SDNY are committed to fighting affinity fraud in all its forms—and doing our part to help prevent people from becoming victims in the first place.  We look forward to partnering with all of you to do that.