Retirees Lose Millions on 'Safe' Investment Scams

May 18, 2010 — -- It took 27 years for Linda Aleknus to save $200,000 for her retirement ... and just a few months to lose it all.

Aleknus was one of more than 120 investors who, the Securities and Exchange Commission says, fell victim to an alleged $20 million Ponzi scheme targeting retirees in California and Illinois.

"It destroyed me physically, emotionally, financially," said Aleknus, 59, a former U.S. Postal Service worker from Melrose Park, Illinois. "Now I don't have have the money to go on with my life."

Financial fraud watchers say that retirement investment scams targeting retirees and soon-to-be retirees seem to be on the rise. One reason, they say, is simply because scammers now have more people to target: the nation's 78 million Baby Boomers -- the generation born between 1946 and 1964 -- are starting to retire.

Many Boomers saw their savings pummeled by the financial crisis and swings in the stock market. That's giving scammers a fresh "in," experts say.

"When the market did its significant decline, it had a serious impact on retirees who were depending on their retirement savings to last a lifetime," said Sally Hurme, an attorney with AARP. "We have certainly noticed some aggressive marketing of some financial products as a sort of solution to the market downturn and promising a sort of instant recovery of all your savings -- promises that obviously cannot be fulfilled."

Pat Huddleston, the founder and CEO of Investor's Watchdog, a private investigation firm focusing on investments, said some scammers attempt to lure victims by promising safe, stable returns.

"These days with the volatility of the market, what people need to hear is they've got safety," said Huddleston, a former enforcement chief for the SEC's Atlanta office.

Today's scammers, he said, follow the lead of infamous convicted Ponzi scammer Bernie Madoff, who delivered "solid" annual returns of 10 to 15 percent to his clients before law enforcement caught up with him in 2008.

Scammers today offer returns of 6 to 8 percent, he said.

"That, on its face, is not ludicrous," he said, "but you have to be careful of that guarantee -- how can someone possibly give that to you?"

Alleged Retirement Scam Victim: 'I'm Embarassed and Ashamed'

Aleknus said wariness of the stock market, where she said she lost tens of thousands of dollars, was part of why she found a pitch by USA Retirement Services so appealing. She said company officials told her in the fall of 2009 that they would put her $208,000 in retirement savings into "Turkish Eurobonds" that would guarantee an 8.35 percent annual return over three years.

She agreed to the investment, she said, because company officials promised it would provide her with safe "above-average" returns. But Aleknus also concedes that she didn't understand what Turkish Eurobonds actually were.

"I'm embarrassed and ashamed that I got involved with something like this," she said. "I don't know how to get past it."

In March, the SEC announced it had obtained an emergency court order to shut down USA Retirement Services (USARMS). In a complaint filed in U.S. District Court for the Central District of California, the SEC alleged that the company found investors by hosting estate planning seminars. After scheduling follow-up meetings with seminar attendees, they pitched them Turkish Eurobond investments.

The company ultimately raised $20 million from more than 120 investors in California and Illinois between 2005 and 2010.

But USARMS never invested that money, the SEC alleges. Instead, as in other Ponzi schemes, the SEC says the company paid its early investors with money received from new investors. According to the SEC complaint, the company's managing partners Francois E. Durmaz and Robert C. Pribilski also spent the money on luxury cars, a stamp collection, vacations and Internet pornography.

A lawyer for Pribilski declined to comment. People close to the case said Durmaz has left the country and has yet to be found.

The SEC had no comment on Durmaz, nor would officials say whether they expected criminal charges would be filed in connection to the case.

Aleknus said that SEC officials told her it could take at least two or three years before victims of the alleged scam could recover any money. Aleknus isn't hopeful that she'll get anything at all.

For now, she and a friend are trying to start a support group by people who invested with USARMS.

She has advice to share to share with other retirees thinking of putting money into schemes they don't understand.

"Make sure that you check these people out," she said. "Don't get involved with anything you're unsure of."