Older Americans Losing Big in Speculative Investments

Retirement savers across the U.S. are experiencing steep losses of their investments made in complex financial products that until a few years ago were sold only to the most sophisticated investors.

The victims are among the millions of Americans whose stock portfolios and mutual funds tanked during the recent financial crisis. These investors are now searching for ways to realize better returns than what’s being offered by bank deposits and government bonds. Many of the alternate products promise higher returns and are ostensibly immune to stock market volatility.

Promoted by aggressive investment advisers, these new investments are taking the form of speculative bets – such as private loans to startup companies and shares in bundles of commercial real estate properties.

Brokers are eager to sell these speculative investments because they often bring in higher commissions than standard mutual funds and stocks.
But a large number of these investments have proved disastrous.

Cases of potential broker misconduct have been mounting in the offices of regulators, and stiff penalties for fraud are being imposed. For example, one of the nation’s largest brokerage firms, LPL Financial, was ordered to pay $2.5 million for improperly selling real estate bundles to hundreds of investors in Massachusetts.

The practice of investors moving money in pursuit of higher interest rates — known as chasing yield — is reverberating throughout the economy.

Behind the statistics are real people whose losses are palpable. Take the case of a business consultant and her husband, whose sizable IRA began to lose value. The couple moved $470,000 to a new, risky investment recommended by their broker who promised “a modest annual interest rate of 7 percent.”

The couple soon stopped receiving interest payments, the venture went bankrupt, and the couple lost their money.

The team of investment fraud lawyers at Starr Austen & Miller, LLP handles cases involving securities arbitration, misrepresentation, over-concentration, broker fraud, negligence, broker churning, breach of trust, and malpractice.

Source: Article, “Speculative Bets Prove Risky as Savers Chase Payoff,” by Nathaniel Popper, in NYTimes.com.