Sadly, elderly investors must be wary of their inner circle – family members and fraudulent financial advisors are some of the most common perpetrators of elder financial abuse. In some cases, brokers cultivate close relationships with elderly investors, only to exploit their trust for their own financial gain. Seniors should be able to enjoy their prosperity in their golden years, but financial elder abuse threatens their independence as well as their enjoyment of a hard-earned retirement.
Elder Financial Abuse Definition
The Older Americans Act defines elder financial abuse as “the improper act of an individual, including a caregiver or fiduciary, that uses the resources of an older individual for monetary or personal benefit that results in depriving an older individual of rightful access to assets.” Financial advisors are fiduciaries and must act in their client’s best interests. Traditional stockbrokers are not fiduciaries, but they still must follow the rules set out by the Financial Industry Regulatory Authority (FINRA) designed to prevent elder financial abuse.
Elder Financial Abuse Statistics
The National Council on Aging (NCOG) estimates that the annual cost of financial abuse to older Americans ranges from $2.6 billion to $36.5 billion. According to NCOG, one in 10 Americans aged 60+ has experienced elder abuse.
The New York Office of Children and Family Services has gathered data on elderly financial abuse:
- The typical victim of financial elder abuse is between 70 and 89.
- Most are women.
- They are also more likely to be isolated and dependent on caregivers, making them particularly vulnerable.
Why are older adults targeted? Studies show that higher levels of trust among older adults may have something to do with changes in the brain – changes that occur even in the absence of dementia. Additionally, caretakers often have access to a lot of personal information, which can, unfortunately, make it relatively easy for bad actors to perpetrate fraud.
Signs of Elder Financial Abuse
According to the National Council on Aging, signs of elder financial abuse include unpaid bills, as well as sudden changes to wills and spending patterns. Relatives of elderly people with investment accounts should be wary of joint accounts shared with a broker or financial advisor. Suspicion should also arise if an elderly person adds an investment adviser or a broker as a beneficiary, executor, or power of attorney of the elderly person’s estate.
Elderly Financial Abuse Cases
In 2019, the SEC alleged that James Booth defrauded 40 investors for nearly $4 million. Unfortunately, some of these investors included seniors who had entrusted James Booth with their retirement savings. One of these victims was not just a client of Booth. He was also an elderly family member from whom Booth solicited $600,000 in investments.
James Booth solicited elderly clients for investments, directing them to make out checks to Insurance Trends, Inc. Booth represented that investors’ funds would go toward purchasing securities. Instead, Booth used investor money to pay personal expenses and pay off prior investors. Seniors liquidated annuities or used assets in their brokerage accounts to make these payments. The SEC alleged that James Booth never used Insurance Trends to conduct business but simply used it as a “conduit for pocketing investors’ money.” Kurta Law represented dozens of investors against the brokerage firms that employed Booth and were able to recover over $10,000,000 prosecuting these claims.
Do Fraudsters Get Jail Time for Financial Abuse?
Financial elder abuse is usually treated as a civil matter, meaning there is no jail time or criminal record for the abuser. The penalty usually comprises the return of the victim’s money. Sometimes the wrongdoer will be ordered to pay interest, punitive damages, and attorney’s fees.
That said, when elders are deprived of their resources through theft, fraud, misuse of their assets, or by use of undue influence, the victim, or the victim’s family member, is entitled to file charges against the abuser. More often, however, the victim’s family members simply want their elder’s assets returned.
If an elderly person suffered financial abuse at the hands of a stockbroker, they may be able to recover their losses through FINRA arbitration. FINRA arbitration is often cheaper and quicker than a civil case.
Elder Financial Abuse Laws
Because so many elders are vulnerable to financial abuse, in 2015, New York’s Department of Financial Services increased its efforts to protect elderly New Yorkers from financial exploitation. The improper use of an elderly adult’s funds takes many forms, including scams, abuse by trusted individuals (such as family members), and predatory products and services explicitly marketed to the elderly.
But New York’s government isn’t the only agency concerned with elder abuse. Because elder abuse is one of the more common forms of broker negligence and investment fraud, causing elderly investors to lose millions of dollars, the Senior Safe Act of 2018 was signed into law. Lawmakers designed the act to “enlist financial institutions as allies in the fight against financial abuse of older adults.”
In June of 2021, FINRA partnered with the SEC and NASAA (North American Securities Administrators) to announce a new training program, intended as a resource to assist securities firms in implementing the training requirements of the Senior Safe Act. The goal is to efficiently help educate financial professionals to identify and report financial abuse of older adults.
FINRA Senior Exploitation Rules
FINRA has created its own Senior Exploitation Rules to provide firms with the tools to protect senior investors. If you believe your (or your loved one’s) stockbroker failed to uphold these rules, contacting a financial elder abuse attorney is your next step. Securities lawyers handle cases like these regularly and know what questions to ask to uncover signs of financial elder abuse.
FINRA Rule 4512: This rule requires firms to make reasonable efforts to obtain a trusted contact person’s name and contact information upon opening an account. The firm must contact the trusted contact person in the event they suspect financial exploitation or diminished capacity.
FINRA Rule 2165: Financial Exploitation of Specified Adults
“Specified adults” are adults aged 65 and older.
Firms can place a temporary hold on a disbursement from the account of a specified adult if they suspect elder financial exploitation. When they place the hold, the firm will contact all parties authorized to transact business in the account, as well as the account’s Trusted Contact Person – unless the firm suspects any of these parties of financial abuse.
FINRA Rule 3241 states that a broker must not be named as an investor’s beneficiary or an executor of their estate unless they meet the following criteria:
- The investor must be a member of the broker’s immediate family, or
- The broker must receive written approval from their firm.
Brokers have faced fines and suspension following their attempt to get around FINRA Rule 3241. One broker de-linked a deceased investor’s account from the firm so that the firm would not receive notice when he liquidated the annuities he inherited. FINRA imposed a fine of $10,000 and a one-year suspension.
Where Should I Report Financial Abuse of the Elderly?
If you suspect an elderly person is the victim of financial abuse, get in touch with your local adult protective services office. If you suspect your broker or investment adviser is financially exploiting you, contact the FINRA Securities Helpline for Seniors to have a representative review your accounts with you: (844-574-3577). Friends and relatives can also contact the Helpline to report suspected financial exploitation. FINRA routinely investigates broker conduct as a direct result of hotline tips.
What Can I Do About Elder Financial Abuse?
Elder financial abuse is a major problem in the U.S. and often goes unnoticed by friends and family of victims for quite some time. Many regulatory authorities are doing what they can to minimize the abuse, and various resources like the American Banker Association and the National Adult Protective Services Association provide helpful tips for seniors, as well as family and friends, to spot the signs of elder financial abuse.
If you suspect you or a relative may have been the victim of elder financial abuse, contact a securities attorney right away. Securities attorneys at Kurta Law can evaluate your case for free and pursue an aggressive strategy for financial recovery. Call 877-600-0098 or email firstname.lastname@example.org.