Wednesday, May 01, 2019

House passes bill to create senior investor taskforce at SEC

By Mark S. Nelson, J.D.

The House passed legislation that would establish a taskforce within the SEC to address a range of issues that can impact older investors. The National Senior Investor Initiative Act of 2019 (also called the Senior Security Act) (H.R. 1876), co-sponsored by Rep. Josh Gottheimer (D-NJ) and Rep. Trey Hollingsworth (R-Ind), would require the taskforce and the GAO to report to Congress on the financial abuse of senior investors. The bill passed by a vote of 392-20

Taskforce to make recommendations. If enacted, the bill would create the Senior Investor Taskforce within the Commission to consider issues unique to senior investors. The taskforce’s director would be appointed by, and report to, the Chairman. The taskforce would have a lifespan of 10 years, although the Chairman could reestablish the taskforce.

The functions of the taskforce would emphasize four topics: (1) financial exploitation and cognitive decline; (2) possible changes to SEC regulations and to the rulebooks of self-regulatory organizations; (3) coordination within and without the SEC, including with the Elder Justice Coordinating Council; and (4) coordination with state securities regulators and state law enforcement authorities and with other federal regulators.

The Senior Investor Taskforce would have to report to Congress every two years, but not until the GAO submits a report to Congress and to the taskforce on financial issues affecting senior citizens. The taskforce’s reports would focus on eight topics, including the “most serious issues” for senior investors regarding financial products and services and the existing policies and procedures of market participants such as broker-dealers and investment advisers. The bill would define the persons to be studied as those who are over age 65, although the SEC portion of the bill uses the term “senior investor” to describe these persons and the GAO portion of the bill uses the term “senior citizen.”

Bipartisan support. On the House floor, Rep. Gottheimer, citing a report published by the Senate Special Committee on Aging, told members that seniors are the victims of nearly $3 billion in scams each year. The bill’s co-sponsor, Rep. Hollingsworth, added that the problem will continue to grow while also describing two common scams where fraudsters seek to persuade seniors to pay money to help foreign princes or other supposed dignitaries come to the U.S. or to pay money to get family members out of foreign prisons where they are supposedly being held.

Democratic floor manager Rep. Bill Foster (D-Ill) noted that seniors’ memory and judgment issues can make them vulnerable to exploitation. In July 2014, a meeting of the SEC's Investor Advisory Committee explored this aspect of elder abuse. Kathy Greenlee, then-Administrator of the Administration for Community Living and Assistant Secretary for Aging, U.S. Department of Health & Human Services, made the case (see video beginning at 2:03:14) for the SEC and other federal regulators to become more involved in protecting elderly investors. Greenlee said that elder financial abuse is about old age, not just money. She also cited two risk factors that may account for the growth of elder financial abuse: loss of cognitive function and social isolation.

Republican manager French Hill (R-Ark) remarked that preventing fraud against seniors is important because seniors hold much of the U.S.’s investment assets. He also observed that fraud problems extend beyond seniors’ financial relationships to seniors’ interactions with other trusted individuals such as accountants and lawyers.

State regulators also have given their support for provisions in the bill that would promote consultation between federal and state authorities. Michael S. Pieciak, President of the North American Securities Administrators Association and commissioner on the Vermont Department of Financial Regulation, said in a letter to Rep. Gottheimer that, should the bill become law, it will help inform regulators about the problem of elder financial exploitation.

Financial literacy. The House also passed by a vote of 411-6 the related H. Res. 328, which would promote financial literacy for seniors (a separate resolution that would target financial literacy for young adults passed by voice vote). Although the resolution for seniors would not alter securities laws as would the National Senior Investor Initiative Act, its recitations nevertheless demonstrate the scope of elder financial abuse: (1) just one in 44 cases is reported; (2) 10,000 baby boomers turn 65 every day; (3) one in five citizens over age 65 are victims of financial, property, or identity offenses; and (4) annual losses due to elder financial abuse total $36.5 billion. The statistics cited by the resolution come from the National Adult Protective Services Association, the Investor Protection Trust, and the National Center on Aging.

The one bill and two resolutions passed by the House would complement other recently-enacted legislation aimed at protecting seniors. For example, the Senior$afe Act of 2017 (S. 223; H.R. 3758), sponsored by Sen. Susan Collins (R-Maine) and then-Rep. Kyrsten Sinema (D-Ariz) (Sinema is now a U.S. Senator), eventually became law in 2018 as Section 303 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155). The Senior$afe Act provides immunity from suit to individuals and financial institutions that report suspected financial abuse of seniors, provided that those who make such reports have received mandated training.