Elder abuse in connection with stock market fraud has become a recurring issue in the securities industry. Stockbrokers and financial advisors committing fraud against elderly clients can occur in many different ways. Investment advisors dealing with elderly clients may be more inclined to provide more high commission products or allocate the elderly customer into a securities product with high fees. Elder fraud/abuse cases connected to broker dealer fraud that are the most recurring include:
- Fraud by falsification of client's signature
- High fee and commission products not suitable to elderly customers investment profile - variable and fixed annuities are a major product in connection with this practice
- Churning in customer account - trading or high turnover to generate more commissions to broker
- Conversion of client funds - outright stealing customers funds by forging checks or falsifying trades
Elder fraud has become such a major issue in the securities industry that FINRA has created new laws and regulations requiring brokerage firms to create certain rules and procedures for handling investment accounts for elderly investors. FINRA - the self regulatory organization which governs the securities industry has implemented two major rules to curtail financial fraud in elderly investment accounts.
- FINRA Rule 4512 deals with Customer Account Information for Elder investment accounts. Broker dealers dealing with elderly clients have to obtain a contact information for a "trusted contact person". If a broker dealer has reason to suspect fraud in an investment account the trusted contact person will be notified to ensure the elderly investor is not being taken advantage of. What Rule 4512 fails to explain is what conduct triggers a call to the trusted contact person. A sizeable liquidation of the elderly investors account is fairly obvious. What about losses in the investment account, or a higher then normal turnover ratio? Turnover ration is connected to commissions being generated in an account.
- FINRA Rule 2165 calls for a temporary hold on the account for sending funds. The standard is whether the brokerage firm "reasonably believes" financial fraud or exploration of an elderly investor (anyone over age 65) has occurred. This hold gives the broker dealer time to investigate whether fraud has occurred and has set timelines on when the trusted contact person must be notified as well as how long The rule lists specific instances of financial exploitation but omits key issues which routinely arise. These include high fee product placement in investments such an annuities.
Elder abuse and fraud in elderly accounts can occur with high fee complex products as well. Elderly investors are routinely targeted for selling structured products with initial sweetener rates that reset to a new rate based off a complex investment formula.
FINRA rules protecting the elderly provide no alerts to the trusted contact person if a senior investor is placed into these structured products. The rules also do not state anything about notifying the trusted contact person in the event of substantial losses in the client account. These gapping holes in elderly investor protection give stock fraud in connection with the elderly accounts the chance to persist.
With over 100,000 baby boomers retiring every day coupled with weak broker dealer rules shielding elderly investor from fraud the problem is only going to get worse before it gets better.
If you or someone you know has been the victim of elder abuse in connection with an investment account please contact the law firm of Lubiner Schmidt and Palumbo for a consultation. Put our experienced securities team to work handling your case.