Legal protections for seniors at risk of financial abuse
Fortunately, federal and state financial regulators have taken steps in recent years to shore up legal protections for elderly victims of financial fraud. Today elderly persons — or their trustees or guardians — can expect to be provided notice of suspicious transactions from banks and brokerage houses. And if elder abuse is not detected until it is too late, they have strong legal rights to take action against financial institutions and brokerages who should have, but failed to, prevent elder financial abuse from occurring.
According to U.S. Census Bureau estimates:
Do not assume you are not at risk
Seniors are overconfident in their ability to protect themselves from financial abuse. A survey conducted by Allianz Life Insurance Co. found that 94 percent of senior respondents said they would tell someone if they became a victim of elder financial abuse. Yet over half of their family members believed they would actually do so. And, according to a survey of state securities regulators conducted by the North American Securities Administrators Association, 97 percent agreed with the statement that most cases of senior financial fraud go undetected until serious harm is uncovered. Just one in 44 elder financial abuse cases are ever reported, according to the National Adult Protective Services Association.
The following occurrences could be an indication of elder financial abuse:
- Unexpected withdrawals or checks debited from a bank or brokerage account
- Unnecessary expenses that cause the liquidation of securities or withdrawal of funds from an account
- Changing power of attorney or beneficiaries of an account
- Unexpected changes to testamentary documents (e.g., wills, trusts)
- Transactions have occurred in the account but the elderly person has not spoken to their broker
- Purchasing investments which are out of character for the elderly person
- Loans made by the elderly person to their broker
Legal Liability of Brokers for Elder Financial Abuse
Brokers Can Be Held Responsible
In Trottier vs. Morgan Stanley Smith Barney LLC, et al., Case. No. 15-02910 (June 9, 2017), a divided FINRA arbitration panel awarded compensatory damages and attorneys’ fees to a woman who withdrew $300,000 from brokerage account to pay a security system installer. The majority concluded that the broker had enough evidence to reasonably believe that the transaction was fraudulent; he should have blocked the withdrawal and reported the security system installer to the police. In Wechsler, et al., vs. Raymond James Financial Services Inc., et al., Case No. 10-04291 (Oct. 4, 2012), a FINRA arbitration panel awarded $800,000 in combined damages, including treble damages, to a woman, individually and as representative of an elderly woman’s estate, for exploitation of an elderly person. The panel ruled two individuals must pay compensatory damages of $270,000 and $265,000 plus interest, respectively. Raymond James Financial Services must pay $265,000, plus interest at the Florida statutory rate.
The Financial Industry Regulatory Authority (FINRA), a self-regulator of broker-dealers, has instituted special protections for elderly investors. Specifically, FINRA rules give brokers two tools to respond to situations in which they have a reasonable basis to believe that financial exploitation has occurred, is occurring, has been attempted or will be attempted. Although broker liability is not explicitly created by FINRA rules, the fact that a broker may place a temporary hold on a suspicious transaction could lead a court or arbitrator to conclude that the broker should have held up a transaction if the facts suggested to a reasonable person that financial exploitation was occurring.
Trusted Contact Person
FINRA Rule 4512 requires brokers to make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer’s account or when updating account information for a non-institutional account.
FINRA Rule 2165 permits a broker who reasonably believes that financial exploitation has occurred, is occurring, has been attempted or will be attempted to place a temporary hold on the disbursement of funds or securities from the elderly person’s account.
The Safe Seniors Act
In the spring of 2018, President Trump signed the Senior Safe Act, a measure that was included in a package of financial regulatory reforms. The law incentivizes financial institutions to report suspected elder financial abuse in exchange for immunity from lawsuits claiming violations of bank privacy laws. Immunity is conditioned on bank employees enrolling training programs regarding elder financial exploitation. Nothing in the Senior Safe Act requires financial institutions to report suspected elder financial exploitation, nor does it require enrollment in elder abuse training programs. However, it is possible that widespread adoption of elder financial abuse training programs will create a standard of care that all financial institutions must meet.request free consultation
Florida Laws Prohibiting Elder Financial Abuse
Nearly every state has a law protecting seniors from financial exploitation. In Florida, for example, a combination of criminal and civil statutes protect elders from financial abuse. Florida’s civil financial exploitation statute, Fla. Stat. § 415.102 (2016), provides in part:
(8)(a) “Exploitation” means a person who:
- Stands in a position of trust and confidence with a vulnerable adult and knowingly, by deception or intimidation, obtains or uses, or endeavors to obtain or use, a vulnerable adult’s funds, assets, or property with the intent to temporarily or permanently deprive a vulnerable adult of the use, benefit, or possession of the funds, assets, or property for the benefit of someone other than the vulnerable adult; or
- Knows or should know that the vulnerable adult lacks the capacity to consent, and obtains or uses, or endeavors to obtain or use, the vulnerable adult’s funds, assets, or property with the intent to temporarily or permanently deprive the vulnerable adult of the use, benefit, or possession of the funds, assets, or property for the benefit of someone other than the vulnerable adult.
(b) “Exploitation” may include, but is not limited to:
- Breaches of fiduciary relationships, such as the misuse of a power of attorney or the abuse of guardianship duties, resulting in the unauthorized appropriation, sale, or transfer of property
- Intentional or negligent failure to effectively use a vulnerable adult’s income and assets for the necessities required for that person’s support and maintenance
- Unauthorized taking of personal assets
- Misappropriation, misuse, or transfer of moneys belonging to a vulnerable adult from a personal or joint account
Florida defines an “Elderly person” as a person 60 years of age or older who is suffering from infirmities of aging as manifested by advanced age or organic brain damage, or other physical, mental, or emotional dysfunctioning, to the extent that the ability of the person to provide adequately for the person’s own care or protection is impaired. Fla. Stat. § 825.101(4). It also defines a “Vulnerable adult” as a person 18 years or older whose ability to perform normal activities of daily living or to provide for his/her own care or protection is impaired due to a mental, emotional, sensory, long-term physical or developmental disability or dysfunction or brain damage, or the infirmities of aging. Fla. Stat. § 415.102(28).
California Laws Prohibiting Elder Financial Abuse
California has equally powerful protections against elder financial abuse. California’s civil remedy for elder financial abuse, California’s Welfare & Institutions Code §§ 15600-15766 (2017), provides in part:
(a) “Financial abuse” of an elder or dependent adult occurs when a person or entity does any of the following: (1) Takes, secretes, appropriates, obtains, or retains real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both. (2) Assists in taking, secreting, appropriating, obtaining, or retaining real or personal property of an elder or dependent adult for a wrongful use or with intent to defraud, or both. (3) Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, appropriating, obtaining, or retaining, real or personal property of an elder or dependent adult by undue influence, as defined in Section 15610.70.
California’s statute protects all people age 65 and older, without regard to whether they are suffering from a cognitive impairment due to age. Similar to Florida, successful complainants are entitled to compensatory damages, punitive damages and attorneys’ fees.
Federal Securities Fraud
Investors are afforded protection under both federal and state securities laws. At the federal level, the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and Rule 10b-5 protect investors against deceptive and manipulative acts in the purchase or sale of securities. Rule 10b-5 makes it unlawful to employ a device or scheme to defraud, to make any untrue statement of material fact or omit to state a material fact not misleading, or to engage in any practice that would constitute a fraud. Similarly, most states have enacted comprehensive statutes to protect investors, known as “blue sky” laws.
Elderly investors are particularly vulnerable to fraud and misrepresentation. Securities fraud includes a wide range of illegal activities centered around the misrepresentation or omission of information an investor would reasonably want to know and consider before making an investment decision regarding whether to buy, sell or hold a security.
A financial advisor can commit securities fraud in many ways, including but not limited to the following:
- Failure to disclose the risks of an investment or strategy
- Failure to disclose the cost or commission of a transaction at the time of the recommendation
- Failure to disclose financial interests the financial advisor or their employing brokerage firm may have in the investment being recommended
- Failure to consider and disclose the relative pros and cons of buying or selling an investment, or pursuing an investment strategy
- Failure to put the investor’s interests first when recommending to buy, sell or hold an investment
- Failure to disclose all material facts prior to recommending a transaction