Financial Abuse of Senior Investors

Senior investors are becoming an increasingly large percentage of those utilizing the services of financial services firms, investment advisors, insurance agents, and brokerage firms. It is estimated seniors lose almost $3 billion dollars a year to financial exploitation and fraud. As the senior population grows, this problem will continue to increase. Unfortunately, the senior population is also suffering from increasing amounts of cognitive decline like dementia and Alzheimer’s disease. The sad reality is, seniors, especially those who are vulnerable as a result of cognitive decline, are all too often victims of financial exploitation. The attorneys at M&D Lawyers LLP Offices will stop at nothing to recover those financial losses from those who choose to abuse senior investors, including stockbrokers, financial advisors, lawyers, accountants, insurance agents, and investment advisors.

State Statutes Offer Protections and Civil Remedies for Victims of Exploitation

In Illinois, there is a statute with a civil remedy that includes a stiff penalty – treble damages – for those that exploit the elderly. That law is the Illinois Financial Exploitation of the Elderly and Disabled Persons Act. 720 ILCS 5/17-56 (2021). Pursuant to subsection (a), a person commits financial exploitation of an elderly person when he or she stands in a position of trust or confidence with the elderly person; knowingly and by deception or intimidation obtains control over the property of an elderly person; or illegally uses the assets or resources of an elderly person.

How is an Elderly Person Defined?

An “elderly person” is defined by the statute as “a person 60 years of age or older”. 720 ILCS 5/17-56(c)(1). “Deception” is defined as “a misrepresentation or concealment of material fact relating to the terms of a contract or agreement entered into with the elderly person…or the use of any misrepresentations, false pretense or false promise in order to induce, encourage or solicit the elderly person to enter into a contract or agreement.” 720 ILCS 5/17-56(c)(4). Moreover, a “financial planning or investment professional” is specifically defined as a person who stands in a position of trust and confidence. 720 ILCS 5/17-56(c)(iv). The statute holds a person who violates this Act civilly liable “in damages of treble the amount of the value of the property obtained, plus reasonable attorney fees and court costs.” 720 ILCS 5/17-56(g).

What Does the Illinois Statute State?

The Statute also specifically identifies “[t]he illegal use of the assets or resources of an elderly person or a person with a disability includes, but is not limited to, the misappropriation of those assets or resources by undue influence, breach of a fiduciary relationship, fraud, deception, extortion, or use of the assets or resources contrary to law.” In the context of financial and investment advisor services, those who perform investment or brokerage services for senior clients and rip them off are subject to a reckoning by this stiff law.

What Protections Do Other States Provide?

Some other states besides Illinois have laws which provide for a stiff civil remedy for financial abuse of the elderly, including California (Elder Abuse and Dependent Adult Civil Protection Act), Arizona, Connecticut, Delaware, Florida, Iowa, Minnesota, Oregon, South Dakota, Utah, and West Virginia. Many states, unfortunately, do not provide for civil remedies, but do follow reporting requirements and provide criminal sanctions for financial abuse of seniors or vulnerable adults.

Securities Regulators Have Increased Requirements and Obligations to Senior Investors

Securities regulators have been coming around to the reality of financial exploitation of seniors. In 2015, after a decade of regulatory initiatives that concentrated on senior investors and financial industry practices related to senior investors, the SEC and FINRA published the SEC/FINRA National Senior Report. This report was the product of 44 examinations of brokerage firms that focused on the types of securities senior investors were purchasing and the firms’ sales practices. In January 2016, Rick Ketchum of FINRA identified financial abuse of seniors to be a FINRA regulatory and examination priority. The letter states “In some instances, Registered Representatives have borrowed large sums of money from elderly clients, and in other situations have taken control of assets through Powers of Attorney and other mechanisms.” Id at 7.

Even brokerage firm defense lawyers agree that financial exploitation of seniors by financial advisors is a massive problem. SIFMA – The Securities Industry and Financial Markets Association – had this to say about financial exploitation of seniors in 2015:

What is FINRA Regulatory Notice 07-43?

In 2007, FINRA released Regulatory Notice 07-43, which for the first time, addressed specific issues regarding Senior investors. After the 2015 initiatives, FINRA implemented rule changes to its code of conduct specifically for senior and vulnerable investors. FINRA Rule 4512 requires firms 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 account. Further, FINRA Rule 2165 permits a firm to place a temporary hold on a disbursement of funds or securities from the account of a “specific adult” customer when the firm reasonably believes that financial exploitation of that adult has occurred, is occurring, or has been attempted or will be attempted. More recently, in Regulatory Notice 19-36, FINRA recommended FINRA Rule 3241, which would require written notice from a financial advisor when being appointed a trustee or power of attorney for non-family customers. The new rule would require a brokerage firm to assess whether to approve of the arrangement based on several factors.

Warning Signs of Financial Exploitation

Most of the times, loved ones do not know that a senior in their lives has fallen victim to financial exploitation until it is too late and its already happened. People are inherently private about their financial affairs, and anyone with a parent who is a senior knows how difficult it can be to carefully inquire about their finances without offending or angering them. There are some warning signs to be aware of that should result in further inquiry:

• A financial advisor, investment advisor, or other advisor has legal authority or control over a senior’s finances through a power of attorney or some other means.
• You notice a change in spending habits, or it seems your loved one cannot afford things you know or have reason to believe, they can afford.
• Your loved one is involved in complicated, opaque, “private” investments that do not seem to be of the brand they should be investing their money into.
• Your loved one becomes unusually private and unwilling to discuss financial matters they would have previously been open to discussing.
• You notice that your loved one is not receiving mail, like account statements or other standard documents that they should be receiving.

This list is far from exhaustive and these, along with many others, in combination, can be cause for concern.