FINRA is the Financial Industry Regulatory Authority, a self-regulatory organization formed in 2007 when the regulatory arms of the NYSE and the NASD merged and has been looking after the financial exploitation aspect too.
Chris Kelly is the deputy head of the FINRA Enforcement and head of Main Enforcement and Sales Practice Enforcement.
Kelly was the most recent guest on the FINRA podcast, Unscripted.
He was on to talk about financial scams, frauds, and other crimes committed against America’s elderly.
Kelly noted that since he arrived at FINRA in 2014, he has seen these crimes increase.
“Just in the five or six years that I’ve been with FINRA, I’ve seen a substantial increase in the number of cases involving the exploitation of senior investors and the results are often devastating, especially when you’re talking about seniors who may be out of the workforce and living on a fixed income. If they lose their life savings to an investment scheme, they may never recover,” Kelly said on the podcast.
Kelly explained that seniors present an inviting target for scammers for a myriad of reasons. Kelly noted a surprising fact, stating that the fastest growing segment of the US population are 85 and older.
“Also, on average, seniors tend to hold to higher levels of wealth than other generations, if for no other reason than they’ve had more time to accumulate that wealth,” he noted further.
While seniors can be the victims of trading and investment scams, Kelly said they can also be defrauded in other ways by their investment advisors.
He described one story involving an octogenarian with Alzheimer’s.
“At the time this widow, the customer, was 81 years old. She was in declining physical and mental health. She required near full time care for a variety of physical ailments. She’d been diagnosed with Alzheimer’s disease and dementia and, unfortunately, she didn’t have any close living relatives. She was really on her own at that time. The broker drove the customer to a local estate planning attorney and asked that attorney to mend the customer’s will to name the broker a beneficiary the customer’s estate. Now, to her credit, the attorney said I cannot make that change unless and until a psychologist examines the customer and determines that she is competent to do so. And so, a psychologist examined the customer and found that, not surprisingly, she was not competent, and the attorney refused to amend the will.
“What happened next–the broker drove the customer to his personal attorney, who amended the will and named the broker a beneficiary entitling him to receive about $1.4 million from the customer’s estate. So, we got the case and after investigation we charged the broker with acting unethically in violation of FINRA Rule 2010 by procuring his appointment as beneficiary when he knew that the customer lacked the capacity to make that appointment.
“That particular story had a happy ending. The request to the broker was stopped. He didn’t get the $1.4 million and ultimately that broker was barred from the industry. But that is a trend that we have seen more and more often in the broker dealer industry. I should also mention that recently FINRA proposed a new rule on this subject and that rule would limit the circumstances under which a broker could be named a beneficiary executor or trustee for a customer. We announced that rule proposal in Regulatory Notice 19-36. And it’s not finalized yet. It’s still in process, but it’s a rule that we are considering.”
