Scamming The Elderly

The federal government and more than half the states announced plans Thursday to go after the people behind a new investment scam, CBS News Corresponent Wyatt Andrews reports—a con that has already cheated thousands of people, many of them elderly, out of hundreds of millions of dollars.

Barbara Mahoney's trusted financial adviser of 15 years sold her corporate promissory notes which, he swore, would deliver 11-1/4 percent interest, guaranteed.

Mahoney lost $158,000—every penny of her retirement nest egg.

"He told me over and over this was insured…I trusted him completely," she recalls.

Mahoney, a 69-year-old widow, is one of thousands of victims of a massive nationwide scam.

Popping up in 39 states, the system involves the sale of nine-month promissory notes by a companies that wish to raise money—a kind of company borrowing not normally sold to the public. The company sells the notes to insurance agents at 10 to 12 percent interest.

Then the insurance company issues notes promising 8 to 18 percent interest, mostly to elderly investors who are told the instruments are guaranteed safe.

Part of Mahoney's investment went to Sebastian International, a company which, investigators said, used the cash "to support the lavish lifestyles" of company officials.

The insurance company, New England Surety, is based in Belgium and has ignored her claims for reimbursement.

"The guarantees were by foreign insurance companies that were located offshore that either didn't exist or have the financial capabilities of carrying the repayments," says Richard Walker, Director of Enforcement for the Securities and Exchange Commission.

On Thursday, 28 states and the SEC announced a crackdown. Welcome news, but too late for retirees like Mahoney.

Investigators say consumers and investors must remember that high-yield investments almost always have higher risks. Legitimate high-yield bonds can always be verified with either state security agencies or the SEC.