May 23, 2016

Emotions Make Older Investors More Vulnerable to Fraud, Says FINRA/Stanford/AARP Study

According to research, some financial fraudsters may try to manipulate investors by getting them to feel strong emotions so that they will hand over their money, and older investors are the ones who most vulnerable to this type of manipulation. Research was conducted and funded by the FINRA Investor Education Foundation, the AARP Fraud Watch Network, and Stanford University psychologists. They said that inducing certain emotions in older individuals may make them more likely to purchase items that were falsely advertised.

The team studied adults in the 65- 85 age group and adults in the 30-40 age group. They sought to find out whether inciting anger or excitement in either demographic made them more susceptible to fraud.

According to their findings, feeling excitement or anger enhanced an older investor’s desire to buy in investment item as opposed to when there was no emotional arousal. Furthermore, the emotional state felt by an older adult did not have to be positive or negative for him/her to become more vulnerable to fraud. As AARP Fraud Watch Network Dr. Shadel stated, whether a fraudster is trying to get an older investor excited about making a lot of money or angry about past or future financial losses, either approach, when used to get them to make a purchase, proved just as impactful. The elderly investor's rational thinking becomes suspended in the process.

The research found that in younger adults, experiencing strong feelings of excitement or anger did not appear to be a factor in whether or not they would make a purchase. This suggests that heightened feelings do not increase the younger group’s susceptibility to fraud.

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April 20, 2016

Indiana Investment Adviser Sentenced for Bilking Older and Disabled Clients of Over $680K

Cindy L. Lampkins is sentenced to five years behind bars. The Bloomington, Indiana investment adviser stole over $680,000 in retirement money from elderly investors and disabled clients. Lampkins was convicted on count of money laundering and one count of wire fraud.

Lampkins was the VP of Kern Financial Group, which offers financial and insurance services. The investment firm belongs to her and her father.

According to investigators, between 2/10 and 11/13, Lampkins persuaded clients to pay Kern Financial Group for nonexistent products. The Internal Revenue conducted a probe, as did state police, who discovered that Lampkins lied to clients, gave them doctored financial statements, and concealed her actions from them. Investors thought their money was going into annuities with high interest rates or to buy a product that would cover funeral costs in the future.

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April 16, 2016

SEC Cases: Litigation Marketing Company Accused of Defrauding Retirees, NY Town Officials Hide Money Problems from Municipal Bond Investors, and Ski Resort is Tied to Fraudulent E-B Five Offerings

Elder Financial Fraud: LA Based-Company Accused of Bilking Retirees and Others
The Securities and Exchange Commission is charging PLCMGMT LLC, also known as Prometheus Law or PLC, and co-founders David Aldrich and James Catipay of bilking retirees and other investors. The two men are accused of raising $11.7M by telling investors that their money would go toward bringing together plaintiffs for class action cases and other lawsuits. Investors were promised substantial returns of 100% to 300% from any settlements. PLC is a litigation marketing company based in Los Angeles.

The SEC contends that only $4.3M of the money was used to find prospective plaintiffs and not much revenue was made from any settlements reached. Instead, Aldrich and Catipay took $5.6M to cover their own expenses. The two men downplayed the risks involved and did not disclose that their business model was “unrealistic.” Instead, PLC and its founders claimed that investments were secure and guaranteed when they were actually very speculative and high risk, especially as not all potential plaintiffs typically qualify to become actual plaintiffs. Compound this factor with the reality that winning any lawsuit is never a guarantee.

Our elder financial fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP are here to help older investors recoup their losses.


Officials of Ramapo, NY Accused of Hiding Financial Woes from Muni Bond Investors
The SEC is accusing the New York town of Ramapo, its local development corporation, and four town officials of fraud. The Commission claims that the officials committed fraud to hide the financial stress caused by the $60M spent on constructing a baseball stadium, as well as the decline in sales and property tax revenues. The four individuals allegedly cooked the books of Ramapo’s main operating fund to make it seem as if it held positive balances of up to $4.2 million over a six-year period when actually the balance deficit at one point reached close to $14M.

The regulator said that since the town guaranteed the stadium bonds that Ramapo Local Development Corp. (RLDC) had issued, an operating revenue shortfall at the corporation was concealed and investors were not apprised that the town would likely have to subsidize bond payments, which would cause the general fund to lose even more money.

Continue reading " SEC Cases: Litigation Marketing Company Accused of Defrauding Retirees, NY Town Officials Hide Money Problems from Municipal Bond Investors, and Ski Resort is Tied to Fraudulent E-B Five Offerings " »

April 15, 2016

Broker Violations & FINRA: PNC Investments to Pay $225K for Overcharging for Mutual Funds and Stifel Nicolaus is Fined $750K For Not Following Reserve Requirements

The Financial Industry Regulatory Authority has announced that PNC Investments will pay nearly $225K in restitution for charging retirement clients too much for mutual fund investments. According to the regulator, the brokerage firm did not apply waivers for investors in certain Class A share mutual funds even though there was a waiver for front-end charges for eligible customers.

Instead, said FINRA, PNC Investments sold Class A shares customers with a front-end load or other shares that had a back-end load and higher fees and expenses, some of which were charged on an ongoing basis. Because of this, certain customers were charged excessive fees and paid them.

FINRA said that PNC Investments charged 121 customer accounts in excess of $191,740 for mutual funds—although the actual amount, with interest, was closer to $224,750. PNC will pay restitution to eligible investors.

The brokerage firm self-reported the overcharges after reviewing its own conduct last year to assess whether it was issuing the sales waiver to those that were eligible. FINRA said that the broker-dealer experienced lapses in supervision, did not keep up written policies and procedures that were adequate, and failed to help advisers assess when to waive the sales charges.

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April 4, 2016

Four Face SEC Charges in Florida Elder Abuse Scam Involving Free Dinners

The U.S. Securities and Exchange Commission is charging four men with fraud. The regulator claims that Joseph Andrew Paul, James S. Quay, John D. Ellis, Jr., and Donald H. Ellison sought to bilk investors, including seniors, by promising them lucrative returns for their money.

The SEC contends that Ellis and Paul lied about their investment advisory firm’s performance record, generated fraudulent marketing collateral that included performance figures from the website of another firm, and recruited Quay and Ellison to be part of the scheme. The latter two then purportedly used the fraudulent materials to deceive investors who answered a mass mailing that offered a free dinner at a restaurant in Florida. Quay, who previously was found liable for securities fraud and convicted of tax fraud, allegedly used the name “Stephen Jameson” as an alias to hide his real identity. The SEC said that Jameson was not a registered investment professional when the allegedly fraudulent behavior took place, nor was Ellison for most of that time.

“Free Lunch” Seminars
The Commission has warned more than once that when it comes to investment seminars there is no such thing as a “free lunch.” While you, as the attendee, may not have to pay for the food, these seminars are educational programs and investment workshops geared toward getting you to buy an investment product that a host or an affiliate is touting.

While there are plenty of legitimate investment seminars, there are those that have purposely been set up to bilk prospective attendees. At such gatherings there may be fake products sold, misrepresentations about risks and returns made, conflicts of interest related to the products for sale and the information provided, and advertising collateral that is misleading or inaccurate. Unfortunately, older investors continue to be a favorite target of financial scammers.

At Shepherd Smith Edwards and Kantas, LTD LLP, our elder financial fraud lawyers are here to work with investors to get their money back.

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March 24, 2016

Elder Investors: Morgan Stanley Must Pay Home Shopping Network’s Estate Over $34M, Broker Accused of Making Over $1.7M From Churning at Craig Scott Capital, and $10M Ponzi Scam Involving Jamaican Businesses Targets Older Investors

FINRA Panel Awards Estate Over $34M from Morgan Stanley in the Wake of Churning Allegations
A Financial Industry Regulatory Authority arbitration panel awarded the estate of Home Shopping Network Roy M. Speer over $34M in its case against Morgan Stanley (MS). The panel ruled that the firm, branch manager Terry McCoy, and broker Ami Forte were jointly liable for breach of fiduciary duty, negligence, unauthorized trading, constructive fraud, unjust enrichment, and negligent supervision. The alleged negligence would have occurred from 1/09 to 6/12 and involved investments in the financial services and banking sectors.

According to Mrs. Speer’s lawyer, in six of Mr. Speer’s accounts, about 12,000 transactions took place, most of them involving municipal bond trading and corporate trading. Many of these trades were unauthorized.

The arbitrators awarded $32.8M in compensatory damages to Speer’s widow, Lynnda Speer, and $1.5M for the costs involved in the arbitration process. The panel said that Morgan Stanley violated a law in Florida that prohibits the exploitation of vulnerable adults. Mr. Speer had dementia. Forte, who was his broker, is said to have been in a relationship with him.


Former Craig Scott Capital Broker Accused of Elder Financial Fraud
FINRA is accusing broker Edward Beyn of making over $1.7M in commissions and fees by engaging in excessive trading in client accounts while he was a registered representative at Craig Scott Capital. He is now with Rothschild Liberman. Beyn is accused of churning nine accounts of six customers, all of them over the age of 60, from 3/12 through 5/15. They all sustained losses.

Continue reading "Elder Investors: Morgan Stanley Must Pay Home Shopping Network’s Estate Over $34M, Broker Accused of Making Over $1.7M From Churning at Craig Scott Capital, and $10M Ponzi Scam Involving Jamaican Businesses Targets Older Investors" »

March 15, 2016

Stockbroker Fraud: Ex-JPMorgan Broker Who Gambled Gets Five Years, FINRA Bars Broker Over Elder Financial Fraud, Risky Alternative Investment Sales and Ex-Broker is Indicted by Jury for Allegedly Bilking Clients of $2.8M

Former JPMorgan Broker Who Stole Over $20M from Richest Clients, Gambled, Goes to Prison
Michael Oppenheim, a former broker with JPMorgan Chase & CO. (JPM), has been sentenced to five years behind bars. Oppenheim pleaded guilty last year to stealing over $20 million from 10 of his richest clients. At one point Oppenheim managed nearly $90 million for 500 clients. He claims he was addicted to sports gambling.

He began betting on NFL games in 1993 and later got involved in online sports betting. After losing hundreds of thousands of dollars, he began stealing from clients to cover his losses. Oppenheim also started options trading in tech stocks to repay these clients and in one day lost $2.7M. He concealed the theft by providing customers with bogus account statements.

Prosecutors contend that Oppenheim persuaded clients to take out up to millions of dollars from their accounts by promising to put their money in low risk municipal bonds that would be kept at the bank. Instead, he used the funds to get cashier’s checks that he deposited into accounts that were his but located outside the bank. Oppenheim purportedly targeted clients he knew wouldn’t be watching their accounts closely. His scam went on for over seven years.


FINRA Bars Broker for Senior Financial Fraud
The Financial Industry Regulatory Authority has barred David Joseph Escarcega from the financial industry. Escarcega is accused of making a dozen unsuitable recommendations involving debentures tied to the life insurance policy secondary market and targeting elderly clients. He must also pay a $52,270 fine, which is how much he kept in commissions.

According to FINRA, Escarcega sold the debt instruments, which were issued by CWG Holdings Inc., from 3/12 to 6/13. The regulator said that the debentures were very risky and only suitable for investors that could afford to lose all of their investments. The 12 customers involved in this matter were not that type of investor. A lot of the investments were placed in IRAs.

Continue reading "Stockbroker Fraud: Ex-JPMorgan Broker Who Gambled Gets Five Years, FINRA Bars Broker Over Elder Financial Fraud, Risky Alternative Investment Sales and Ex-Broker is Indicted by Jury for Allegedly Bilking Clients of $2.8M " »

March 8, 2016

North Carolina Retiree Couple Files FINRA Arbitration Case Against Morgan Stanley Over Energy Investment

Two North Carolina investors have filed an arbitration claim with FINRA against Morgan Stanley (MS) over unsuitable investments involving the financial firm’s Cushing MLP High Income Exchange Traded Note. The married couple, who are retirees in their sixties, are accusing the brokerage firm of:


· Common law fraud

· Negligence

· Breach of fiduciary duty

· Negligent supervision

· Failure to adequately disclose the risks


In a phone interview with InvestmentNews, the claimants said that they have lost over $100K. According to the couple, a Morgan Stanley broker invested about $150,000 of their money in the Morgan Stanley Cushing MLP High Income ETN, which is an exchange traded note connected to master limited partnerships with shipping and energy assets. Their legal team said that the couple did not understand the extent of the risks involved in that they could potentially lose their principal. This was a loss they could not afford. Instead, the claimants were purportedly told that their investment would make them money.

The Cushing MLP High Income Exchange Traded Note seeks to give investors cash upon maturity or early repurchase, as well as variable coupon payments every quarter (depending on how the underlying index, performs). The claimants’ broker fraud lawyers believe that Morgan Stanley recommended the exchange traded note to investors who were seeking to make money but may not have understood or been fully apprised of all the risks.

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March 4, 2016

SEC Bars Former Investment Adviser Over Alleged Misuse of Exchange-Traded Funds

The U.S. Securities and Exchange Commission is barring Nicholas Rowe, the former owner of registered investment advisor Focus Capital Wealth Management, from the industry. The charges come in the wake of parallel proceedings in New Hampshire where state regulators barred him from being licensed as an investment adviser. The New Hampshire Bureau of Securities Regulation also said he had to pay $20K.

Rowe and his RIA are accused of using inverse and leveraged exchange-traded funds in a way that was not suitable for clients. They also purportedly made misrepresentations regarding the fees that the clients would be charged.

Focus Capital had been registered with the SEC until 2012 when it registered with New Hampshire instead. The state launched a probe into the RIA’s investment practices, which allegedly included placing the assets of older investors into unsuitable strategies without notifying them that was what was happening. A number of elderly clients, including three widows, allegedly lost close to $1.M.

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February 13, 2016

Securities Fraud: Ex-Broker Jerry McCutchen Under Investigation for REIT Sales, Hedge Fund Manager Must Pay $18M to SEC, and NASAA Steps Up Fight Against Elder Financial Fraud

Former Broker Is Subject of Numerous Securities Claims
If you are an investor who sustained losses after purchased real estate investments trusts with the help of former broker Jerry McCutchen, you may have grounds for a securities claim. According to the Financial Industry Regulatory Authority’s BrokerCheck Report, McCutchen is accused of making unsuitable investment recommendations and he has been the subject of over a dozen broker fraud claims alleging negligence, misrepresentations, and other claims.

In one case, McCutchen, while registered with Berthel Fisher & Company Financial Services, Inc., is accused of placing a couple’s retirement funds in speculative, illiquid, alternative investments that he misrepresented as safe investments in line with the husband and wife’s investment goal to keep their money safe. In reality the Tier REIT, the Icon Leasing Fund Twelve LLC, and others, did not have proper diversity or allocation and were not suitable for the couple.

McCutchen is not registered with any firm at this time nor is he a licensed broker at the moment. He was registered with Berthel Fisher & Co., Bay City Securities, Next Financial Group, First Funds Inc., FSC Securities Corp, Central Brokerage Services, Commonwealth Equity Services, MML Investors, Proequities Inc., and Walnut Street Securities.


NY Hedge Fund Manager Ordered to Pay $18M
Moazzam “Mark” Malik, and his American Bridge Investment Group LLC are facing SEC charges accusing them of bilking 19 clients of over $1M through the sale of limited partnership interests in a fake hedge fund that was run under different names. The SEC said that Malik claimed that the fund held $100M when that amount was never more than about $90,000. Now, the regulator is ordering Malik to pay $18M.

Continue reading "Securities Fraud: Ex-Broker Jerry McCutchen Under Investigation for REIT Sales, Hedge Fund Manager Must Pay $18M to SEC, and NASAA Steps Up Fight Against Elder Financial Fraud" »

January 11, 2016

Massachusetts Charges Citizens Securities in Elder Fraud Case

William Galvin, the securities regulator of the state of Massachusetts, has filed charges against Citizens Securities for purportedly selling an older investor funds that were too high risk for her investment tolerance level. He wants restitution for the investor, who lost approximately $7,000.

Citizens Securities operates out of Citizen Bank locations. According to the state, even though she had a low risk tolerance level, the woman was sold alternative and emerging markets funds and funds that purchase high-yield bonds. She also purchased a market-linked CD, investing $100K, without comprehending that it was riskier than a regular CD.

Her financial consultant, whom she met at Citizens Bank, purportedly did not give adequate disclosures of the branch’s brokerage activities or tell her the name of his employer. This caused the investor to think that he worked for the bank.

The advisor is accused of disregarding the elderly investors stated goals and not asking about her investment experience or education. The administrative complaint says that she told the financial consultant that she didn’t want to be exposed to the stock market. It also said that financial consultants at Citizens Bank are not supervised daily or in-person.

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December 22, 2015

Fidelity Must Pay $1M Penalty For Failing to Detect Elder Financial Fraud

The Financial Industry Regulatory Authority (FINRA) has imposed an over $1 million penalty on Fidelity Investment’s Fidelity Brokerage Services (Fidelity) for failing to protect clients from a financial fraud committed by a woman pretending to be a broker for the firm. Lisa A. Lewis (Lewis) stole over $1 million from customers, most of whom were elderly investors. FINRA says that the firm’s retail brokerage arm should have been able to detect the scam, but Lewis was able to perpetrate her fraud because Fidelity’s supervisory controls were lax.

According to the self-regulatory organization (SRO), from August 2006 to May 2013, Lewis told customers from a firm she was fired from for purported check-kiting and improperly borrowing customer funds that she was with Fidelity, when she had no such connection to the firm. Lewis set up Fidelity accounts by using the personal data of nine people and placed the accounts in their name, as well as established joint accounts with them in which she named herself co-owner. Lewis then had all communication regarding the accounts sent to her. Lewis was able to set up over 50 individual and joint accounts at the firm. She proceeded to convert assets from these accounts for her own benefit.

Last year, Lewis pleaded guilty to wire fraud related to the elder financial fraud scam, and she is now behind bars where she is serving a 15-year prison term. She also has to pay over $2 million in restitution to the customers she harmed.

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December 15, 2015

LPL Financial to Pay $750K in Nontraded REIT Case Involving Elderly Investor in New Hampshire

New Hampshire’s Bureau of Securities Regulation says that LPL Financial has consented to pay $750,000 to resolve charges involving the sale of nontraded real estate investment trusts to an elderly investor. The state says that transactions were not only unlawful but also they were suitable for the 81-year-old customer.

The state says that the sale of the nontraded REITs were unsupervised, causing the investor to sustain substantial losses in 2008. Aside from the $750K, which includes $250K to the bureau, $250K in administrative fees, and $250K to the investor education fund, LPL will offer remediation to any client in New Hampshire that bought a nontraded REIT through the firm since 2007 if the sale did not meet the firm’s product-specific limitations or guidelines.

Nontraded REITS
Nontraded REITs can be high-risk investments. They are liquid and may come with substantial front-end fees of up to 15%. Distributions are not guaranteed and are determined by the alternative investments' board of directors. REITs are not traded on exchanges and there is a limited secondary market for them, which can make them difficult for investors to sell.



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December 12, 2015

Securities Fraud News: Texas REIT’s Share Price Drops Following Ponzi Allegations, Morgan Stanley, Ex-Broker Are Found Jointly Liable in $1M Elder Fraud Case, and Brokerage Firm Resolves Variable Annuities Claims for $475K

United Development Funding IV Shares Fall After Allegations of Texas Ponzi Scheme
United Development Funding IV (“UDF IV”), a Texas-based real estate investment trust (“REIT”), saw its share price drop after Harvest Exchange published a post that said the REIT had been run like a Ponzi scheme for years. United Development was a nontraded REIT that became traded when it listed on Nasdaq last year under the symbol “UDF”.

In the report on the Harvest site, the anonymous author said that the UDF umbrella had traits indicative of a Ponzi scam, such as, it uses new capital to pay distributions to current investors and UDF companies and gives substantial liquidity to earlier UDF companies to pay earlier investors. The article said that once the funding of retail capital to the most current UDF stops, the earlier UDF companies do not seem able to stand on their own. This purportedly indicates that the structure will likely fail and investors will be the ones sustaining losses.

After the report by the online professional network of investors, UDF IV saw its share price plunge from $17.53 to $10.10. It later dropped further to $8.55/share.

Over $1M Awarded in Senior Financial Fraud Case Against Morgan Stanley and a Former Financial Adviser
A Financial Industry Regulatory Authority Inc. arbitration panel has awarded 92-year-old Genevieve Lenehan (“Mrs. Lenehan”) over $1M in her claim against Morgan Stanley (MS) and former Morgan Stanley advisor Justin Amaral (“Amaral”). Mrs. Lenehan accused Amaral of churning and reverse churning her account. Amaral also advised Mrs. Lenehan’s husband until his death five years ago.

Continue reading "Securities Fraud News: Texas REIT’s Share Price Drops Following Ponzi Allegations, Morgan Stanley, Ex-Broker Are Found Jointly Liable in $1M Elder Fraud Case, and Brokerage Firm Resolves Variable Annuities Claims for $475K" »

October 23, 2015

Ex-Coastal Investment Advisors President Admits to Bilking Investors, Including Seniors

Ex- Coastal Investment Advisors Inc. President Michael Donnelly and the firm’s affiliated broker-dealer will settle Securities and Exchange Commission charges accusing him of bilking brokerage customers and advisory clients of close to $2M. According to the SEC complaint, Donnelly’s 13 victims included unsophisticated investors and older investors belonging to the 64 to 85 age group.

Donnelly would get clients to write checks to Donnelly Advisors Group. The money was supposed to pay for their investments. Instead, the regulator says, rather than investing the funds, Donnelly took investor money and used them to pay for his own living expenses and for his children’s private school tuition.

From ’07 to ’14, he hid the securities scam by providing bogus trade confirmations, account statements, and other fake information that made it appear as if investors had actual investments that were doing well. For example, he generated portfolio reports that listed fake investments. He even set up an online report for at least one client in which he inserted ticker symbols of stocks he supposedly bought for that individual. Donnelly also modified brokerage statements and trade confirmations to make clients think they were holding certain investments.

According to the criminal action against him, which is discussed below, when one couple asked Donnelly for their money, he allegedly convinced another investor to liquidate part of an annuity while making it seem as if the funds were to go toward buying out another investor. He then used the money to give the couple back their funds. Donelly’s investment scam failed last year after he was caught.


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October 15, 2015

Ex-Edward Jones Advisor Gets Five Years Behind Bars for Bilking 56-Year-Old Disabled Woman

Jason Wade Cox, a former advisor for Edward Jones, was sentenced to five years in prison after pleading guilty to charges of mail fraud, wire fraud, and money laundering involving the account of a 56-year-old disabled woman. Cox had been managing the account of Jodene Beaver ever since the death of her father three years ago.

Beaver, who has mental and physical impairments, was left a trust by her father, who chose Cox as her financial adviser. Unfortunately, rather than helping Beaver, Cox stole thousands of dollars, taking money from the original account, moving the funds into her checking account, and then spending a lot of the cash on gambling. Not only did Cox spend all of Beaver’s money, but also he recommended that she sell her condominium and transfer to an apartment that had bed bugs.

According to the Internal Revenue Service, Cox got around federal banking rules by taking out from Beaver's account just under the amount that would have required him to file currency transaction reports. When bank officials asked Beaver about the money she was withdrawing for the financial adviser, she replied that they were business partners but wasn’t sure what kind of business they were involved in. Her bank closed her accounts and notified the police.

In addition to the prison sentence, Cox must serve three years supervised release and pay over $412,000 in restitution.

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September 28, 2015

NASAA Board Releases Proposed Model Act to Protect Vulnerable Adults from Financial Exploitation for Comment

The North American Securities Administrators Association announced that its Board of Director has approved to release for comment a proposed model act to tackle the problems faced by brokerage firms, investment adviser firms, and their representatives when dealing with signs that older senior investors, or other vulnerable adults, may be suffering from financial exploitation. The proposed model is called "An Act to Protect Vulnerable Adults From Financial Exploitation."

If approved, the act would mandate that qualified investment advisers and brokerage firm employees notify their securities regulator, as well as Adult Protective Services, if they have reason to believe that a vulnerable adult has been subject to financial exploitation. They would also be able to notify a third party that had been previously designated by that client of their suspicions, as long as that person is not the one suspected of the exploitation. The act would let qualified firm employees provide records related to the attempted/suspected exploitation to the authorities.

Brokerage firms and investment advisers who fulfill the requirements of the act would be granted immunity from civil or administrative liability related to the elder financial fraud. Also, advisers and broker-dealers would be granted the authority to delay account disbursements if they thought that something untoward was happening.

A vulnerable adult in such scenarios would be someone who is age 60 or older or an adult who is vulnerable in other ways that could prevent him/her from being able to self-protect from exploitation. NASAA’s proposal comes soon after the one that was issued by the Financial Industry Regulatory Authority.

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September 12, 2015

US Study Says Older People Are More Susceptible to Financial Fraud Because of How The Brain Works

According to a study published previously in the Proceedings of the National Academy of Scienceshttps://www.nia.nih.gov, the reason why elderly people are more susceptible than younger folk to financial fraud is because the ability to identify trustworthiness decreases with age. The researchers looked at two different groups—one group was comprised of younger adults (ages 20 to 42) and older adults (ages 55-84.)

The groups judged faces in photographs. These faces had been pre-rated for approachability and trustworthiness.

While both groups identified those that had been pre-rated as neutral or trustworthy as approachable and trustworthy, the older group was more likely than the younger group to identify the faces that had been pre-rated as ‘untrustworthy’ as trustworthy. Shelly Taylor, a UCLA psychologist who was involved with the study, said that the reason for this was that older adults did not detect certain “easily distinguished” facial cues indicative of untrustworthiness.

The researchers asked another forty-four participants to undergo functional magnetic resonance while rating the faces. While the older adults did not display much of an activation in the anterior insula, which is the part of the brain known for regulating "gut feelings” that affect decision-making, the younger adults’ anterior insula exhibited a stronger response. Taylor said that while the younger adults were getting that ‘uh-oh’ feeling, the older adults were not.

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August 22, 2015

FSC Securities to Be Held Accountable for $1.2M FINRA Arbitration Award Issued to Victims of Ponzi Scammer Who Faked His Death

A Financial Industry Regulatory Authority Inc. panel said that FSC Securities Corp. is responsible for a $1.2 million arbitration award for compensatory damages to investors that were bilked by Aubrey Lee Price, the infamous Ponzi scammer from Georgia who tried to fake his death to in 2012. FSC Securities is a broker-dealer with AIG Advisor Group (AIG).

The eight claimants contend that the brokerage firm did not supervise a number of brokers who sold them fraudulent securities that were part of Price’s $40 million Ponzi scam. According to their securities lawyer, Price and two other ex-FSC brokers persuaded clients to invest in the PFG fund, an unregistered investment fund, which was the main product of the scheme.

When the trading account sustained huge losses Price prepared account statements for investors that noted fake asset amounts and investment returns. The claimants believe that FSC failed to properly supervise its brokers and had numerous chances to detect that Price and the other brokers were selling away into the PFG fund while claiming “preposterous” return rates.

Price was an FSC broker from 2006 to 2008. Prior to that he worked at Citigroup Global Markets (C) and Banc of America Investment Services (BAC). Last year, a federal judge sentenced him to 30 years behind bars for bank fraud.

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July 14, 2015

LPL Financial Fined $250K by Massachusetts Over Misrepresentations Made to Senior Investors

Massachusetts Secretary of the Commonwealth William Galvin has fined LPL Financial (LPLA) $250K to resolve charges that its representatives misrepresented their qualifications when working with older investors. The state’s regulator claims that the brokerage firm approved having brokers use senior-specific titles on their business cards. The titles were not in compliance with the state’s regulations regarding senior designations.

After Galvin’s office discovered one such incident, LPL conducted an internal probe and discovered that at least 10 brokers may have been using titles that were not in compliance with the state’s Senior Designations Regulations. The regulator said that the firm had even approved the title on one broker’s business card more than once.

Galvin contends that since June 2007, LPL failed to establish or enforce a procedure allowing it to look at senior-specific titles to make sure they complied. He noted the importance of not using titles that imply one has an expertise in advising senior investors when there is none. The Senior Designations Regulations prohibit the use of titles that imply a training or certification that the titleholder doesn’t actually possess.

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