Congress may be onto something, but can they make it stick? Reflecting legislators’ concern over rampant cases of investment fraud perpetrated against seniors, the June 30 “Senior Investment Protections Enhancement Act of 2008,” Bill S. 3219, would provide for assessment of a $50,000 monetary penalty in cases of securities violations against investors 62 years of age and over.

Concurrently, a cooperative effort by the SEC (Securities and Exchange Commission) and NASAA (North American Securities Administrators Association) to address senior investment fraud has resulted in plans to regulate equity-indexed annuities (as announced by Chairman Cox on June 25):

‘we are considering a new rule that would establish — on a prospective basis — the standards for determining when equity indexed annuities are not considered annuity contracts under the Securities Act of 1933 and therefore are securities and thus are subject to the investor protections afforded by the securities laws.”

But even if such legislation/regulation can garner enough support for enactment, it may not go far enough to overcome recent Supreme Court decisions limiting the reach of investor suits by making it more difficult than ever for anyone to actually prove the unsuitability of an investment much less a securities violation.

Civil liability for “aiding and abetting” a fraud, or secondary liability, was dealt a blow in Central Bank of Denver v. First Interstate Bank of Denver in 1994; the burden of proof of “intent” to defraud investors was raised significantly in Tellabs Inc. v. Makor Issues and Rights, Ltd. in 2007; and at the beginning of 2008, outside participants in a deceptive scheme were deemed beyond reach based on a perceived absence of “reliance” by investors on undisclosed wrongdoing (StoneRidge Partners v. Scientific Atlanta).

This is the real dilemma facing investors of all ages: how to put teeth into the anti-fraud laws and recover damages, whether in court or FINRA securities arbitration.