The Alcala Law Firm has filed a securities arbitration claim before the Financial Industry Regulatory Authority (FINRA) against Cantella & Co., Inc. alleging elder financial abuse on behalf of a 68-year-old woman diagnosed with dementia. Also named as respondents in the arbitration proceeding where two other brokerage firms where the customer previously maintained accounts as she followed her stockbroker Dennis ("Deno") Webb from firm to firm. The other respondents named in the claim include: MML Investors Services, Inc. and optionsXpress, Inc. (a subsidiary of Charles Schwab & Co. that was formerly doing business as brokersXpress LLC) This investigation is still ongoing. For further information, please contact us.
Recently in Elder Abuse Category
Although instances of elder financial abuse are on the rise, a report by The MetLife Study of Elder Financial Abuse reminds us that elder financial abuse is by and large "underreported, under-recognized, and under-prosecuted."
If you witness or experience any form of elder abuse, immediately contact Adult Protective Services in the county where the senior resides.
Recently, public and private organizations have stepped up their efforts to raise awareness about the financial exploitation of elderly investors. Below is a collection of links and resources aimed at protecting seniors from financial abuse.
- Kiplinger Magazine: The Crime of the 21st Century. Click here to download Special Report from Kiplinger's Personal Finance
- Investor Protection Trust: A nonprofit organization devoted to investor education. Elder Investment Fraud and Financial Exploitation Prevention Program
- AARP: Five Tips to Help You Avoid Investment Fraud
In my securities law practice, I've encountered numerous instances of elder financial abuse. Often the abuse is caused by a family member. Other times, a financial advisor is the root cause. According to the Consumer Financial Protection Bureau, seniors lost over $2.9 billion to financial exploitation in 2010. As the percent of the population over 65 continues to grow, instances of elder financial abuse will be on the rise. Here are three examples of elder financial abuse that recently caught my eye:
RBC Capital Markets: RBC Capital Markets was fined $200,000 by FINRA and required to pay $70,000 in restitution to an elderly customer for engaging in unsuitable and excessive trading of closed-end funds ("CEFs") that were purchased at the initial public offering ("IPO"). See related blog posting regarding the unsuitability of purchasing CEFs at the IPO.
Wells Fargo Investments Inc.: Former Wells Fargo broker Alfred Chi Chen entered into a settlement barring him from acting as a stockbroker for improprieties associated with sale of reverse convertible notes to elderly and retired individuals. See related blog post: Wells Fargo Investments Fined $2 Million for Unsuitable Reverse Convertible Note Sales. Alfred Chi Chen also reportedly conducted unauthorized trades in the accounts of deceased clients.
H.D. Vest Investment Services: Former broker Charles Duane Lewis was permanently barred from acting as a broker after pleading guilty to the charges of misappropriating more than $500,000 from a customer in her late 80s using a power of attorney which allowed him to draw checks on her account.
Many investors do not realize that the terms Financial Analyst, Financial Advisor, Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are simply generic terms or job titles commonly used by stockbrokers and investment advisors. Equally as troubling are the use of titles or designations, such as "Senior Specialist," that are designed to gain the trust and confidence of elderly investors and retirees. The use of such designations is often little more than a marketing tool to attract business from the rapidly growing pool of investors who are 65 years or older.
Recently, our law firm filed a securities arbitration claim against a financial advisor who touted his qualification as a "Certified Senior Advisor" (CSA) and assured a group of elderly women who attended a free lunch seminar that his firm "worked exclusively with senior investors to protect their financial assets and standard of living." Based on these assurances, they believed that their financial advisor had their best interests in mind when he recommended that they invest the bulk of their assets in a risky high-yield investment.
Our clients are now seeking damages through arbitration before the Financial Industry Regulatory Authority (FINRA). The organization that granted the broker his CSA designation, cannot provide any direct assistance to these investors. Although the Society of Certified Senior Advisors (SCSA) has a mechanism for disciplining CSA designees who fail to adhere to their Code of Professional Responsibility, the SCSA's primary method of discipline is to simply revoke the financial advisor's CSA designation.
FINRA Oversight of Senior Designations
In November 2011, FINRA published a Regulatory Notice urging brokers to pay closer attention to the use of senior designations that imply an expertise or specialty in advising senior investors. According to a survey conducted by FINRA, 68% of firms allow the use of senior designations by their representatives. Of those firms that permit the use of senior designations, 66% require the approval and verification of the credentials, 23% require approval but do not verify credentials, and 11% do not require approval of the certification and do not verify the credentials.
There are a variety of senior designations in use by brokers including: Certified Senior Advisor (CSA), Certified Senior Consultant (CSC), Chartered Senior Financial Planner (CSFP), Chartered Advisor for Senior Living (CASL), Certified Retirement Planning Counselor (CRPC), Accredited Retirement Plan Consultant (ARPC) and Certified Retirement Services Professional (CRSP). FINRA is most concerned with those titles that have little, if any, meaningful qualification standards. California law also precludes broker-dealers and investment advsiors from using senior-specific credentials in the offer or sale of securities where such credentials are non-existent or where the organization does not have reasonable standards for ensuring competency of certified individuals. According to FINRA: "[i]nvestors are unlikely to differentiate between designations that represent an enhanced level of proficiency in dealing with financial matters relevant to senior investors versus a designation that is simply a marketing tool." A brokerage firm that allows the use of any title that conveys expertise in advising for retirement or senior investors where such a specialty does not exist could be in violation of industry rules and also the anti-fraud provisions of the federal securities laws and FINRA rules.
There's No Such Thing as a Free Lunch
A common tactic used by bogus "senior specialists" is the hard to resist free-meal seminar. Elderly investors should be particularly wary of salesmen who are pushing variable or indexed annuities. It is particularly important to make sure that the sales person is properly licensed. Before investing, all investors, especially seniors, should check out a broker's disciplinary history using FINRA's BrokerCheck service.
Today, the Consumer Financial Protection Bureau named Hubert H. Humphrey III to direct the newly created Office of Older Americans, which was established to focus on elder financial abuse - especially in connection with reverse mortgages and retiree bankruptcies. Based on the cases that have come through our securities law firm, other areas that need immediate attention include: high yield investments and variable annuities.
In a statement by Raj Date, a senior Treasury advisor, he stated that seniors are targeted by fraudulent practices and, according to the CFPB, are losing almost $3 billion a year from such abuses. Such poor investment advice is an important issue for seniors who often have more assets than younger investors and are in a position where they have to make complex financial decisions. A representative of the AARP explained that older Americans are being talked into investing in annuities using money from a reverse mortgage - a practice that she says is a very bad investment decision.
One concerning practice is the growing prevalence of financial advisers with a so-called "senior certification." Humphrey intends to work to make sure that financial advisors do not mislead older investors by telling them that they specialize in seniors.
Another questionable investment strategy is the use of reverse mortgages, which are comprised of hard to understand terms and high fees. Humphrey intends to address the issue of reverse mortgages along with other scams and fraudulent sweepstakes directed at senior investors.
According to Humphrey's blog post regarding his new position, the Office of Older Americans will give seniors the tools they need to detect financial scams and make informed financial choices.
If the type of cases that are coming into my securities law firm are any indication, then claims of account mismanagement and securities fraud involving senior citizens are on the rise. Without a doubt, the recent economic downturn wreaked havoc on many retirement portfolios. According to the Investment Company Institute (ICI), retirement assets in the United States fell by $4.5 trillion between the end of 2007 and the first quarter of 2009.
Because the estimated number of Americans who are 65 or older will more than double to 89 million individuals over the next 4 decades, regulators have made protecting seniors from investment fraud and abuse a top priority. In a report issued today by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association ("NSAA"), the three agencies outlined the steps that financial services firms should take in order to improve their policies and procedures when working with senior investors. Click here to download the joint report.
The regulators are urging financial services firms to adopt these latest practices when serving senior investors. "Best practice" guidelines alone, however, are not enough to protect millions of soon-to-be-retired baby boomers. Securities regulators will need to aggressively monitor and bring enforcement cases against financial services firms that prey upon senior investors.
As the wealthiest segment of our population ages, instances of elder financial abuse will be on the rise. Whenever elder financial abuse is suspected, it should be immediately reported. What is elder financial abuse? Elder financial abuse is broadly defined as the theft or taking of money or property from an elder or senior citizen.
In 2009, California amended its Elder Abuse laws to include the taking money from an elder through the use of undue influence. Elder abusers can also include those who help or assist in the financial abuse of an elder.
What should you do if you suspect elder abuse?
Members of the public are encouraged to report instances of elder abuse to local law enforcement or adult protective services. If a financial institution reasonably suspects that there has been elder financial abuse, they are required by law to report the abuse. Victims of financial abuse can also take legal action against the abuser and anyone that has assisted them. Warning signs of elder financial abuse:
- The elder person develops a new close relationship with someone who offers to manage their finances and assets.
- Family members or caregivers isolate the elder and restrict the person's contact with others and closely regulate/monitor the elder's visitors.
- The elder is confused, forgetful, frightened, withdrawn or secretive.
- The appearance of suspicious spending patterns, withdrawals or financial activity in the elder's bank or brokerage accounts.
- The elder has made an investment that they do not understand or that appears inappropriate, particularly investments that charge high fees/commissions or impose early withdrawal penalties.
- Signatures on checks or forms do not resemble the elder's or the information on the form is incorrect.
Immediately report any instance of elder abuse to Adult Protective Services or the police department. Many states make it mandatory for financial institutions to report suspected financial elder abuse. Remember, anyone who assists in the financial abuse of an elder, may also be liable.