Articles Posted in Seniors

Seniors-Sign-300x300This is a follow up to our last blog post: 5 Warning Signs of senior Investment Fraud and Elder Financial Abuse.   Summarized below are three very recent examples of enforcement actions by the Financial Industry Regulatory Authority (FINRA) that illustrate the growing problem of elder financial abuse and the situations that can arise when stockbrokers take advantage of their most vulnerable clients.

Excessive Trading:  In what appears to be a slap on the wrist, FINRA suspended a broker for 8 months for engaging in excessive short-term trading in several elderly client accounts, including a 95-year old widow who lost $283,000 and a couple in their 70s who lost $239,000.  They were each charged more than $260,000 and $210,000, respectively, in commissions and markups.   The broker, who was fired by UBS Financial Services, was not required to pay any fine or restitution to his victims—perhaps due to his bankruptcy filing.  In August 2019, the broker’s suspension will be lifted and he can resume working as a stockbroker.

Control of Customer Accounts:  A stockbroker formerly affiliated with LPL Financial was permanently barred for her role in taking control over two customer accounts and misappropriating funds. According to FINRA, the broker received $9,000 from a terminally ill client after inducing him to name her as the beneficiary of  a “transfer-on-death” bank account.  The broker also received over $60,000 following the death of an elderly client that had named the broker as a joint owner on their bank account; and another $248,000 as a beneficiary of the customer’s estate.  None of these clients were family members of the broker.

Senior-Xing-thumb-200x300-200x300In 1959, people 65 or older had the highest rate of poverty than any other generation according to the U.S. Census Bureau.  Today, older Americans are better off financially than any other generation.  Bank robber Willie Sutton once famously said that he robbed banks because, “That’s where the money is.”  If Willie Sutton were alive today, he would find it easier and more rewarding to prey upon senior citizens.  Although awareness of senior financial fraud is increasing, cases involving elder investment fraud and financial abuse are on the rise.  Early detection and prevention are your best defense.  Elder financial abuse typically occurs when someone exploits a position of influence or trust in order to gain access to the elderly person’s assets.  Examples of financial abuse may include:

  1. Unexpected changes in wills, trusts or powers of attorney
  2. Sudden or unexplained check cashing, transfers or withdrawals
  3. Opening of a new new brokerage account (or multiple accounts) or changing brokerage firms
  4. Unusual increase in investment activity or change in investment style
  5. Overly secretive or reluctance to discuss financial matters

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Last week, a securities arbitration panel in Los Angeles, California, found Morgan Stanley Smith Barney (“MSSB”) liable for elder financial abuse by aiding and abetting an unaffiliated individual’s financial exploitation of their customer. The decision, which was arbitrated before the Financial Industry Regulatory Authority (FINRA), ordered MSSB to pay compensatory damages, interest and attorney fees totaling $396,623 pursuant to California’s Elder Abuse Statute. Although one of the three arbitrators dissented, the majority found that MSSB failed to protect their elderly customer from being victimized by a third party who exploited the customer’s paranoid delusions and bilked her out of $300,000 for home security equipment. The funds were withdrawn from the customer’s MSSB account over a 4-month period. Prior to the fraud, the customer had only withdrawn $375 per month from the account. The panel majority concluded that MSSB knew or should have known of the fraudulent conduct and failed to take adequate measures to counteract it.

FINRA’s Proposed Rule to Curtail Financial Exploitation of Seniors

In October 2015, FINRA released Regulatory Notice 15-37 adopting Rule 2165 which gives firms the authority to temporarily place a hold on accounts of elderly customers when there is a reasonable belief that financial exploitation has occurred. The rule takes effect February 5, 2018.

  1. Reject aggressive salespeople. Don’t feel pressured to act quickly. Give yourself time to do your homework. Don’t be afraid to say “no.” Request to be put on the “do not call” list.
  2. Ask questions. Ask what licenses the salesperson has. Get copies of all documents you signed and all information shown to you. Never sign blank or incomplete documents.
  3. Get help. Ask for help from a trusted family member, friend, attorney or CPA. Don’t be embarrassed if you don’t understand the investment. Don’t invest in something that you don’t understand.

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.

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.

Seniors Reserved Sign.gifRecently, 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.

Thumbnail image for Senior Xing.jpgIf 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.

At the University of San Francisco Law School’s Investor Justice Clinic, where I am an adjunct professor and supervising attorney, I am seeing a disproportionately large number of senior citizens who are victims of securities fraud and account mismanagement. The oldest client at the clinic is in her 90’s. Elderly clients and those who are seriously ill have unique needs that require swift justice.

The typical securities arbitration claim filed with the Financial Industry Regulatory Authority (FINRA) takes about 1.25 years to complete. Fortunately, investors who are 65 years or older or seriously ill can request an expedited hearing under a program that was established in June 2004. So far, 701 customers have participated in FINRA’s expedited program and, according to FINRA, their cases have been resolved 31% sooner.

For eligible cases, FINRA assures investors that its staff will administer the hearing in an expeditious manner. This program is not specifically covered in the arbitration rules; however, FINRA has amended the Arbitrator’s Reference Guide to remind the arbitrators that they should avoid unnecessary postponements or do anything to delay the proceedings. In my experience, the program has been helpful but the expedited procedures should be included in the arbitration code. As it now stands, the burden rests on the investor’s attorney to insist on getting the earliest possible hearing dates while allowing enough time to adequately prepare the case.

Small investors and seniors who are unable to afford a securities lawyer and have suffered investment losses due to account mismanagement or securities fraud may qualify for free legal assistance from the Investor Justice Clinic, a law clinic operated by the University of San Francisco School of Law in San Francisco, California. I am proud to be working with the students and clients at the Investor Justice Clinic as a supervising attorney and adjunct professor at the university. The Clinic is a valuable resource for small investors that cannot find a securities lawyer willing to take their case on either an hourly or contingent fee basis.

Securities claims against stockbrokers are typically resolved through arbitration before the Financial Industry Regulatory Authority (FINRA). Law students at the Investor Justice Clinic help investors prepare and submit securities arbitration claims. The students are supervised by law professors, securities lawyers and experts in the field of securities.

To qualify for the Clinic’s free legal services, the investor must have suffered damages that are less than $35,000 and have a household income under $50,000. However, these requirements may be waived under special circumstances. The Clinic’s clients are typically located in the western half of the United States, but this is not a requirement.

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?

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