ELDERSCAM

By GEORGE J. CHURCH

As a former real estate saleswoman, widow of a judge and mother of a prosecutor, Mary Ann Downs had far more financial and legal acumen than most aging fraud victims. Even so, con artists had little trouble scamming her out of $74,000. Why? How? Her story is a classic study in what makes fraud against elderly people, especially women, one of the biggest growth industries in America. Con men are bilking the elderly out of $40 billion a year, by one FBI estimate.

When her ordeal started, Downs was 77 and recently widowed and had just learned she had breast cancer. "I was really at the bottom of the barrel," she says. "I was living in San Antonio, Texas, where I knew no one. I guess I was lonely." Right there is a combination that screams "victim." The American Association of Retired Persons (A.A.R.P.) figures that while anyone 60 or older is likely to be on at least one "mooch" (sucker) list, a woman 75 or older is virtually guaranteed to be. Like Downs, such women are often widows, lonely and suffering from ills that make them desperate for someone to talk to.

They are also usually home at midday and available to take calls from phony telemarketers, far and away the biggest class of crooks preying on the old. Downs' first caller identified himself as Curt and spoke in the sympathetic tones that often win the trust of a senior. He commiserated with Downs over her troubles and then told her that her luck was changing: she had just won a prize worth tens of thousands of dollars. But to collect it, said Curt, she first had to buy something from a company called Professional Marketing Inc. in Las Vegas.

Downs sent a $200 check for a shipment of cosmetics. Instead of the prize, she began getting calls from other telemarketing firms--one in Utah, one in Louisiana and four more in Las Vegas. The firms belonged to a new breed of con artist, those who regularly buy and sell names for their mooch lists, at prices ranging from $10 for an untested "lead" to $200 for the name of someone who has fallen for a whole series of scams.

Downs' name must have been pricey. Chasing the ever elusive chimera of a prize, she ordered all sorts of overpriced junk: flimsy telephone-answering machines, tennis bracelets, money clips, hair spray and what was supposed to be two mink coats. "They looked like they'd been made with rat skins," says Downs. "I just put the stuff in a room and closed the door."

To this day she cannot really explain what happened. "I got into it, and I couldn't get out," she says simply. But she does admit she was terrified of telling her children. That anxiety keeps many other fraud victims falling for new scams in the hope of replacing some of the lost money so their sons and daughters will never know. Says Shelly Feldman, president of a Florida fraud-fighting organization called Senior Sleuths: "They're afraid their kids will say they can't handle their finances and they'll be put in a nursing home."

For Downs, the secret finally came out when she gave her 19 children and grandchildren shoe boxes stuffed with nearly identical collections of telescam trash. "We considered taking her checkbook away," says daughter Penelope Clute, a prosecuting attorney in New York State. "Fortunately, we didn't do that. It wasn't her. It could happen to anyone. [The scammers] are criminals, and they have the psychology down pat." Even after her secret was out, Downs could not give up hope of recouping some losses. A few weeks later, she called her children to report, with great relief, that at long last she really had won something: two luxury cars. "Of course that was another layer of the scam," says Clute.

Not, however, the last layer. That is a fraud called "recovery room," reserved for victims who have finally vowed not to be scammed again. In this case, after Downs had moved to Raleigh, N.C., and taken an unlisted phone number, she got a call from a man who gave his name as Virgil Hastings. He said he was a lawyer working for a federal court in California that had impounded the funds of the telemarketers who had fleeced Downs. The court, he said, was ready to return her $74,000--but first she had to send a $950 fee to a Philip Slattery in Livermore, Calif. Downs sent it. The next day, "Hastings" called again and said he would need an additional $1,000 fee before her money could be released. "It seemed such a small amount compared to $74,000," says Downs, that she sent it too. Only then did the scamming stop. Downs never got any money back, of course, but at least she never heard from Hastings again.

That was in March 1993, and Downs has since begun to heal financially and emotionally, in part by giving warning lectures to senior audiences. Other victims have been less fortunate. Some have plunged into such despair that they have lost their will to live. "We have had people tell us they were close to suicide," says Susan Somers, an assistant attorney general in New York State.

Several characteristics make seniors today especially vulnerable. They usually have some money from Social Security and employer pensions, IRA or 401(k) savings, and, if they are widows, the proceeds of their late husband's life insurance. (Con artists avidly read obituary pages to spot new widows' names.) But the seniors know that they are likely to live much longer than their predecessors--maybe long enough to use up their nest egg. And many are fiercely determined never to become a burden to their kids. Sadly, that combination makes them easy prey for phony investment schemes.

"I wanted the kids to be proud of me, wanted to increase my nest egg," says Ruth Crosson, 79, of Golden, Colo. She pooled her life savings with money borrowed on an insurance policy and turned over $100,000 to Richard O'Donnell, an insurance agent who had vowed after the death of her husband 10 years earlier that Crosson would be taken care of. Over the years, O'Donnell told Crosson and 17 other victims that he would invest their money in insurance ventures that would pay them dividends of 13% a year. Actually, he was running a Ponzi scheme, using money from new victims to make payments--briefly--to earlier ones. O'Donnell was sentenced last month to 16 years in prison after a jury in Denver convicted him on 30 counts of theft, securities fraud and racketeering. Crosson got no money back and must now work to supplement a meager pension. She watches over the houses and pets of absent homeowners in Evergreen, a wealthy suburb of Denver.

Seniors today are undermined by admirable traits. Says Bruce Gebhardt, who heads the FBI office in Phoenix, Ariz.: "They grew up in a more polite age, and they can't hang up the phone." Or slam a door in a con artist's face. Many are trusting to a fault: they cannot believe that well-dressed, well-spoken, solicitous young men can be ripping them off.

Thus Evelyn Anderson, 82, a resident of the mammoth Sun City retirement community outside Phoenix, paid an astonishing $10,562 last year to a repairman who fixed some sprinklers and, while at it, wangled a loan with a phony sob story. "I felt sorry for him, going through a divorce and all that," says Anderson.

Dorothea Coleman, 90, also of Sun City, trusted, among other scammers, a man from Las Vegas who represented himself as a minister and talked her into giving him $36,000 for an apparently nonexistent children's home. "I was stupid," she says. But then, like many elderly women, she had never learned how to handle money. In her younger days, wives left all financial decisions to their husbands. Her spouse, a lawyer who died in 1988, "would have known better," says Coleman. "He always warned me, 'Somebody will try to get your money.' And they did."

Peddlers of phony investment schemes often troll for prospects by visiting churches, country clubs or senior-citizen centers, says Tallahassee, Fla., comptroller Robert Milligan. (Not only in Florida, either. The Olive Branch Center in Sun City has had to institute tight screening provisions to keep con artists out of its weekly meetings.) The scammers often perform a legitimate service, such as income-tax preparation, to win the confidence of an elderly customer before pitching a fraudulent investment.

Telemarketers work differently. They are a fraternity of sorts, says Somers. "There are certain bars in Las Vegas where they are known to hang out." Their shops are a kind of floating network of operations that start up, close and reopen on an instant's notice. When active, they run at a true boiler-room pace. One operation busted by federal agents in Phoenix last year had been logging 3,000 calls a day on just four phone lines.

The telemarketers rarely call victims in their own state. Calling across state lines or from Canada helps them elude prosecution because caller and victim are in different jurisdictions. In the bigger boiler rooms, jobs are specialized. "Fronters" make the initial call, working from lists of entrants into legitimate prize contests or from obituaries, or sometimes just looking through phone books for "elderly-sounding" names like Viola or Henrietta. The Sun City phone book is a scam artist's bible because it lists hometowns and former occupations of seniors. "Closers" make follow-up calls to likely marks; "reload men" make them to victims who have succumbed to previous scams. "No-sales men" make a pitch to the suspicious.

Some of the boiler rooms are specialized, peddling only phony prizes, perhaps, or fraudulent investments or fake charities. Two subspecialty operations are the "recovery room" and the "badge room." The latter is staffed by callers who pretend to be raising money for families of slain police officers, firefighters or other related (and fake) charities. American Eagle Advertising, which employed 60 solicitors in boiler rooms in Arizona and Georgia, raked in more than $9 million in two years of operation, according to a 67-count federal indictment unsealed in June. Reload men and "recovery room" specialists individually can make in excess of $300,000 a year.

Elderly residents are sometimes the target of home-repair scams. "These people are cash poor but real estate rich," says Frederick Arriaga, a lawyer with Legal Aid in New York. Their houses, however, may be old and in need of repair. One three-story row house in Brooklyn, N.Y., was bought for $25,000 in 1968 by Warren Singleton, a safety officer at a public school, and his wife Minnie, a health-care assistant. They hoped it would yield enough rental income to support their retirement. After bad tenants just about wrecked the two top floors, Minnie responded to an advertising brochure and phoned a company that sent over a white salesman who called himself Tony. He got the couple to sign a work sheet calling for repairs that he figured would cost $9,000--plus $10,000 in "financing"--to be paid off in monthly installments. The workmen who showed up did additional damage, then demanded cash bribes--$400 in one case--to fix it. Meanwhile, the Singletons' signatures had mysteriously multiplied on mortgage contracts, and the $19,000 became $53,000. The finance company then sold the mortgage to Hempstead Bank. It is now held by Fleet Bank, which contends it has no responsibility for any fraud that was committed before it purchased the contract. The house looks as if it took a direct hit from a bomb, Tony has disappeared, and his company is out of business. Warren Singleton has been disabled by two strokes, and his wife, at 71, has had to take a job as a 24-hour nurse and caretaker for a still older woman in order to keep up the mortgage payments.

Efforts to protect the elderly are picking up. Senior Sleuths, formed in 1989 by the Florida attorney general's office, deploys 550 people in sting operations to gather evidence against scammers. A.A.R.P. has mounted a reverse boiler-room operation in several states. It phones seniors to warn them that their names appear on mooch lists confiscated by police.

State and local authorities are attempting to step up prosecutions of con artists and are joining A.A.R.P. and other organizations in distributing to the aged tips on how they can avoid being conned. Most of the advice seems rather elementary: Don't deal with anyone who demands that a certified check be put in the mail immediately; insist that dubious propositions be put in writing; above all, just hang up on an overly unctuous phone caller. For those who cannot bring themselves to be so rude, Somers has a softer tip: Ask the caller to hold on because someone is ringing the doorbell--and then walk away for a good long time.

Prosecuting the frauds, however, is difficult. Often there are no witnesses to a phone con except the scammer and the victim. The rare con artists who are convicted seldom get sentences anywhere near as long as O'Donnell's 16 years. Far more typical are the prison terms of one to three years imposed on operators of one New York State pyramid scheme. The House in July passed a telemarketing-fraud bill that for the first time sets minimum jail terms for federal convictions. But the minimum will be only six months, or 15 months if the victim is over 55.

Fraud fighters offer this faint cheer: the baby boomers now entering their 50s are more skeptical than their parents. So maybe when they retire, fraud against the elderly will at last become tougher to perpetrate. Maybe.

--Reported by Gregory Aunapu/Miami, William Dowell/New York, Chandrani Ghosh/Washington and Richard Woodbury/Phoenix

With reporting by GREGORY AUNAPU/MIAMI, WILLIAM DOWELL/NEW YORK, CHANDRANI GHOSH/WASHINGTON AND RICHARD WOODBURY/PHOENIX