The Financial Industry Regulatory Authority (FINRA) recently released a report detailing the American public’s susceptibility to financial fraud. The Financial Fraud Research Center estimated that fraud costs the American people over $50 billion a year without including the cost of efforts to prevent and prosecute fraud.
The report entitled, Financial Fraud and Fraud Susceptibility in the United States made two summary claims. The first claim is that ever present fraud solicitations coupled with the inability of people to recognize the signs of fraud place a large number of Americans at risk, especially older Americans. Second, policy maker’s inability to obtain an accurate measure of financial fraud frustrates our understanding of its prevalence and our ability to prevent fraud.
The study highlighted that many Americans cannot identify classic “red flags” of fraud. For instance, the study cited that many Americans lack an understanding of what a reasonable rate of return on a investment would be. The study found that over 4 in 10 people participating in the study found promises of a annual return of 110% or a “fully guaranteed” investment appealing. Participants found such promises appealing even though returns of over 100% are highly improbable and virtually no investment is guaranteed. This lack of understanding leaves many Americans susceptible to fraudulent sales pitches. The study also found that older Americans, age 65 and older, are more likely to be targeted by fraudsters and 34% more likely to lose money than people in their forties.