June 03, 2013 Articles

The Applicability of the Securities Laws to Energy-Related Investments

Investment fraud is on the rise.

By David S. Siegel – June 3, 2013

Several factors have led to a steadily increasing amount of financial and investment-related fraud in recent years. Chief among these have been the aging of the population and the shift from traditional pension plans to individually managed retirement accounts. As the population of elderly people swells with the arrival of baby boomers increasingly responsible for the management of their own retirement accounts, the conditions improve for financial fraudsters. Studies show a link between advancing age and a diminishing ability to make appropriate financial decisions. For example, one study found that older people exhibit less investment skill than younger investors. George M. Kornitoes and Alok Kumar, 2011, Do Older Investors Make Better Investment Decisions?, Review of Economics and Statistics 93: 244–65. Another study found that suboptimal credit behavior increases past the age of 53. Sumit Agarwal, John C. Driscoll, Xavier Mabaix, and David Larbson, The Age of Reason: Financial Decisions Over the Life Cycle and Implications for Regulation, Brookings Papers on Economic Activity 2: 51–117 (2009). Yet another study found that financial literacy declines with advancing age and tied this decreasing financial literacy to poor investment decisions. Michael S. Finke, John Howe, and Landra J. Huston, Old Age and the Decline in Financial Literacy (2009). It appears settled that as the population ages, more and more people are likely to make unwise financial decisions, leaving them vulnerable to scammers and hucksters.

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