Senior Investors

Elder Financial Fraud: One Out of Five Seniors Victimized, Reports WSJ

Published on: January 20, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to the Wall Street Journal, a 2010 survey conducted by the financial education organization Investor Protection Trust reports that out of ever five Americans age 65 and over, one of them has been the victim of elder financial abuse. The paper is calling this an epidemic.

A tracking by the Federal Trade Commission in 2012 found that 26% of all fraud complaints involved seniors age 60 and older. Unfortunately, says the WSJ, investigators estimate that just 10% of elder financial fraud cases are reported, with most of these cases never undergoing investigation-a reason for this being that financial schemes are costly to probe. Often, there is little evidence and federal authorities will typically refuse to look into cases where under $100,000 was involved. Still, less than this amount is a lot for many people-especially retirees and those that are too sick to work anymore.

Older seniors can make easy targets. According to a Duke University study, over one-third of seniors, age 71 and older, have some type of cognitive impairment that can make it hard for them to manage their money properly. There are also many seniors who depend on fixed incomes and are in need of additional funding that can easily fall prey to fraud.

Two Ex-JPMorgan Brokers Alleged Bilked Mentally Impaired Elderly Widow of $300,000

Published on: December 4, 2013 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is barring ex-JPMorgan Chase Securities, LLC (JPM) brokers Jimmy E. Caballero and Fernando L. Arevalo from the securities industry for allegedly stealing $300,000 from an elderly widow who suffers from diminished mental capacity. Although the bank reportedly was not involved in the misconduct, it has given the money that the two men had converted back to the senior investor

According to the SRO, in 2013 the elderly woman deposited about $300,000 in proceeds from two annuity sales into a bank account Arevalo had set up for her. The funds were then taken out of the account with the use of two cashier’s checks and Caballero purportedly placed the funds into a joint account that was under her name and his name at another bank. That institution asked for clarification and confirmation and Arevalo took the woman to the bank to confirm where the funds had come from. The money was then taken out of that account through checks issued to Arevalo and Caballero. Arevalo is also accused of using the account’s debit card to pay for retail purchase and loans for a car and real estate. The elderly widow had no idea these transactions were being made.

The SRO says the two men did not completely cooperate with its investigation. Without deny or admitting to the FINRA charges, Arevalo and Caballero are settling and consenting to the entry of findings.

Texas Man gets 40-Year Prison Sentence for Phony Annuity Scam That Targeted Elderly Women

Published on: September 23, 2013 | by Shepherd Smith Edwards & Kantas, LLP

An Allen, Texas man is sentenced to 40-years behind bars for bilking elderly women out of close to $500,000 in a phone annuity scam. Robert Mangiafico Jr. pleaded guilty to money laundering and theft related in the Texas securities fraud case.

According to prosecutors, Mangiafico persuaded a number of widows to liquidate holdings and securities in brokerage accounts and other assets and he was supposed to use the money to buy annuities for them. Instead, after he had them move the funds to him or to Security Financial Services LLS, which was set up by Thomas Grimshaw of Dallas, the cash went to bank accounts for him and Grimshaw. The two men used the money for personal spending and to scam their investment victims.

Prosecutors say that $655,000 was stolen from four victims, who sustained $458,361 in losses. According to a 2011 indictment, the appropriations were made without the women’s consent because they were of advanced age and their capacity to make rational and informed choices was diminished.

FINRA Arbitration Panel Orders Citigroup to Pay Senior Investor Couple $3.1M for Alleged Broker Fraud Related to “Selling Away” Practice

Published on: September 17, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Citigroup Inc. (C) now has to pay Dr. Nasirdin Madhany and Zeenat Madhany $3.1 million over claims that the financial firm failed to properly supervise a broker, which caused the couple to sustain over $1 million losses. The broker is accused of directing them to invest in real estate developments that later went sour.

In 2010, the couple filed a FINRA arbitration case alleging fraud, negligence, and other wrongdoings related to over $1 million in real estate investments they made between ’04-and ’07. The Madhanys, who are senior investors, were customers of then-Citigroup worker Scott Andrew King, who referred them to politician Lawton “Bud” Chiles III. The latter was looking for investors for a number of real estate projects. King, who allegedly had a conflict of interest (that he did not disclose) from buying two condominiums from Chiles at a discount, is said to have connected the couple and the politician without Citigroup’s knowledge.

The Madhanys invested in two real estate projects, which began to have problems in 2007 when the US housing market failed and that is when the couple lost their money. Also, they, along with other investors, had signed personal loan guarantee related to a $12 million loan on one of the projects. When the loan defaulted in 2009, Wachovia sued all of them. Last year, a court submitted a $10 million judgment against the investors, with each person possibly liable for the whole amount.

Insurance Companies Experiencing Sellers’ Regret Over Variable Annuities

Published on: July 15, 2013 | by Shepherd Smith Edwards & Kantas, LLP

According to The New York Times, a number of insurance companies that sold variable annuities with healthy death or income benefits prior to the financials crisis are regretting this decision. One reason for this is that they are finding it hard to meet the obligations-payouts of at least 6% or guaranteed returns-that come with them.

Now, some insurers are currently trying to get annuity owners to agree to buyouts or move into investments that have lower returns. In some cases, the penalty for not complying is the loss of the payment that was guaranteed to them. Unfortunately, says The Times, the notice of these changes and potential ramifications are not being made explicitly clear to annuity owners, who may be hearing them via generic-seeming notices sent in the mail that don’t show no indication that the letter might be urgent.

One company, The Hartford, has notified advisers and clients that they have until October to change the asset allocation in specific variable annuities. This is to decrease the balance of the client, which would lower how much the company has to pay out. Rather than a 5% lifetime guaranteed payout, the annuity’s owner would receive a lower payout according to a decreased account value. Failure to comply will result in the loss of the rider that guaranteed payment no matter what the annuity’s value in cash. (A spokesperson for The Hartford, which is exiting the annuities business, said that the investment changes only apply to owners with contracts where such changes are allowed.)

UBS, Morgan Stanley, Merrill Lynch, and Other Brokerage Firms Subpoenaed by Massachusetts Securities Regulator in Probe of Complex Investments Sold to Seniors

Published on: July 8, 2013 | by Shepherd Smith Edwards & Kantas, LLP

William Galvin, the Massachusetts Secretary of the Commonwealth, is subpoenaing 15 brokerage firms in its probe into complex products that were sold to older investors. Morgan Stanley (MS), LPL Financial (LPLA), Merrill Lynch (MER), UBS AG (UBS), Bank of America Corp. (BAC), Fidelity Investments, Wells Fargo & Co. (WFC), Charles Schwab Corp (SCHW), & TD Ameritrade (AMTD) are among the broker-dealers that received notices from the state. The subpoenas are seeking information about investments that were sold to Massachusetts seniors, as well as data about the firms’ compliance, supervision, and training.

Galvin noted that when such investments are sold to inexperienced investors, this creates potential “accidents waiting to happen.” He is among a number of regulators that have expressed worry about how many complex products are being marketed to unsophisticated investors that want higher returns during this era of low interest rates. These financial instruments tend to be among brokers’ favorites because they garner higher commissions.

Already, Galvin has brought in over $11 million in fines from brokerage firms that sold illiquid real estate investment trusts to investors in Massachusetts. This type of REIT is hard to sell when a customer wants out. Galvin said that it was during that probe his staff discovered there were a lot of brokers, who were not only inadequately supervised, but also they were selling complex financial instruments that went beyond even their comprehension. The Massachusetts’s regulator office will continue to look into REITs, in addition into oil and gas partnerships, structured products, and private placement deals.

Berthel Fisher, VSR Financial Services, & Cetera Financial Modify the Way They Sell Nontraded REITs and Other Alternative Instruments

Published on: May 24, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Investment News is reporting that in the wake of pressure from regulators, Berthel Fisher & Co. Financial Services Inc., Cetera Financial Group Inc. and VSR Financial Services Inc., are modifying the way they sell specific alternative investments, including nontraded real estate investment trusts, by revising current policy or including no procedures and guidelines. According to executives at the three brokerage firms, they want add liquid alternative choices to their platforms while staying mindful of the issues that regulators recently addressed.

These types of financial instruments are in demand due to their higher yields, especially as traditional investment interest rates for retirees stay low due to the Federal Reserve’s policy. According to VSR chairman Don Beary, Following recent FINRA’s ‘senior sweep,’ his brokerage firm is now more careful about what senior citizens can invest in. VRS’s registered representatives have just been notified about the new illiquid alternative investment sale guidelines, which include a 35% of illiquid investment limit for older clients’ accounts-down from 40-50% previously. Also, for clients in the 70 to 75 age group, they will be allowed to possess no more than 25% of illiquid investments in their portfolio. Clients in the 75 to 84 age group have a 15% limit, while customers older than that will not be allowed to make own any illiquid investments.

Meantime, Centera hasn’t modified customer allocations percentages , but it has enhanced its representative training requirements for representatives that sell illiquid investments and brought in more employees to conduct product due diligence.

New Hampshire Investment Adviser Focus Capital Wealth Management Accused of Elder Financial Fraud to Pay Exchange Traded Fund Victims $2.4M

Published on: March 14, 2013 | by Shepherd Smith Edwards & Kantas, LLP

Focus Capital Wealth Management and its owner Nicholas Rowe are now barred from having a license to serve as either an investment adviser or a broker-dealer in New Hampshire. Rowe and his financial firm are accused of elder financial fraud. Per the settlement with the state, they must pay $2.4 million in client restitution.

The Bureau of Securities Regulation acted against Rowe last year following complaints from clients claiming they’d lost significant amounts of money in risky investments of leveraged exchange-traded funds, which are also known as ETFs. According to the bureau, these investments are not for clients who have a low or medium tolerance for risk. Rowe also allegedly misrepresented his credentials and charged investors unreasonable fees, claiming that these were going to third parties with close Wall Street ties, when, actually, he was keeping part of that money.

Rowe eventually consented to FINRA arbitration over claims filed by a number of his former clients, who alleged civil fraud and negligence. One of the arbitrator’s panels ruled against him for $1.8M in restitution.

Financial Industry Representatives Settle FINRA Cases Over Securities Fraud

Published on: March 12, 2013 | by Shepherd Smith Edwards & Kantas, LLP

These financial representatives have settled the Financial Industry Regulatory turned in their Letter of Acceptance, Waiver, and Consent in the securities cases made against them by the Financial Industry Regulatory Authority. By consenting to the sanctions described and the entry of findings, this does not mean they are denying or admitting to the allegations.

New York Registered Principal Accused of Making Misrepresentations and Missions

Neftali Mercedes must pay $97,000, in addition to interest as restitution to customers. He is accused of intentionally making material omissions and misrepresentations about the risks related to speculative securities and an issuer’s financial state.

Decreased Ability to Process Risk and Danger Make the Elderly Easy Fraud Targets, Says Study

Published on: December 6, 2012 | by Shepherd Smith Edwards & Kantas, LLP

According to a study conducted by UCLA psychologist Shelley Taylor, one reason that older adults may be more easily prone to being deceived is that there appears to be less activity in the part of their brains that processes subtle danger and risk. She wanted to find out how well older people recognize visual clues indicating that someone may be scamming them.

Taylor brought in 119 seniors over the age of 55 and 24 people in their twenties. The two groups looked at 30 photographs that showed one of three faces: a neutral looking face, an untrustworthy one, or a trustworthy one. Taylor found that while the seniors and younger adults rated the neutral and trustworthy faces about the same, the elder adults had a more difficult time identifying the untrustworthy cues, rating them as more trustworthy than did their younger counterparts.

A follow-up study she then conducted using brain imaging showed the seniors exhibiting less activity in the risk processing area of the brain. She also said determined that people’s propensity to focus more on the positive as they grow older might too be causing them to miss deception cues (such as a smile that doesn’t include the eyes or someone who leans backward and/or looks away.)