Fraud

How are Financial Advisors Trying to Prevent Financial Exploitation?

The next time you see your financial adviser, you may be asked to provide a trusted point of contact, such as a relative or friend to call, if the adviser has a reasonable belief that you might be a victim of financial exploitation.

St. Petersburg Estate Planning
Financial advisors are working hard to prevent clients from falling prey to financial exploitation

Kiplinger’s recent article, “New Rules Battle Financial Scams, Elder Abuse” says that your adviser could place a temporary hold on a suspicious disbursement request from you, so your money is protected until the concern is investigated. Once money has left an account, it’s hard to get it back.

Changes include several new laws that protect seniors and their money. For older adults, financial exploitation is a growing problem. One in five older Americans are the victim of financial exploitation each year, resulting in the loss of $3 billion annually.

Mild cognitive impairment can result in older adults not seeing red flags for fraud, says Michael Pieciak, president of the North American Securities Administrators Association (NASAA), which represents state securities regulators. The ability to judge risk may be diminished. He noted that social isolation plays a part, with vulnerable seniors home during the day and apt to answer the phone when a fraudster calls.

Federal and state lawmakers, along with the financial services industry, have initiated new rules to help safeguard seniors and their assets. The idea is that financial institutions and professionals are on the front lines of spotting elder financial abuse. The changes are designed to protect seniors and to shield financial professionals from liability for reporting possible exploitation.

Congress passed the Senior Safe Act in 2018. This law protects financial services professionals from being sued over privacy and other violations for reporting suspected elder financial abuse to law enforcement, provided they’ve been trained. If a bank teller notices that a senior seems confused about withdrawing money or making puzzling transactions, the teller could tell a superior, who could contact authorities, if necessary.

Nineteen states have enacted some version of a NASAA model act that provides registered investment advisers and broker-dealers with guidance on telling a trusted point of contact and putting a temporary hold on a client’s account to investigate financial fraud.

Reference: Kiplinger (April 3, 2019) “New Rules Battle Financial Scams, Elder Abuse”

Can I Disinherit a Family Member?

This is never a decision to be made lightly, but we do live in a world where families aren’t always as perfect as their holiday cards. Some blended families never really blend, opioid addictions create huge challenges for families and some individuals are family in name only. In that case, says Next Avenue in the article “How to Disinherit a Family Member,” you may choose to disinherit someone.

The first step is to work with an experienced estate planning attorney, who practices in your state. This is a complicated process, and if you don’t do it right, it’s entirely possible the person you want to disinherit can appeal your action in court after you’ve died—and win.

A living trust may work better than passing all your assets through a will, when you want to disinherit someone. A will is easier to challenge. He or she may say you were being influenced by someone else when you had your will written, and, therefore, the disinheritance does not reflect your real wishes.  They could also claim that you signed the will without understanding what you were signing, and that you were not mentally competent and could not make legal decisions at that time. This is a charge of fraud.

After you die, your will becomes a public document, and anyone can find out who you decided to disinherit. They may be angry or embarrassed and feel the need to set the record straight, challenging your will to prove their worth.

A living trust, when prepared correctly, remains a totally private document. In some states—check with your estate planning attorney—it can only be challenged by the beneficiaries of the trust.

There can always be charges of fraud, as a result of your being mentally incompetent to sign the trust. However, most people who create living trusts do so several years before their death. Wills are often written or revised shortly before death. Therefore, the person who created the trust has likely opened accounts in the name of the trust, used the accounts, paid bills, etc. That activity makes it hard to prove incompetence.

What if you want to leave someone only a partial inheritance? Your best bet is to ensure that your estate includes a strong “No Contest” provision, technically termed “In Terrorem.” It’s a little harsh, but the general idea is that whoever challenges the will, gets nothing. Courts don’t always like it, but heirs may think twice about challenging your will.

Remember that many of your assets are in accounts with beneficiary designations: IRAs, SEPs, investment accounts, life insurance policies, etc. Review the names on your accounts to make sure the person you want to disinherit does not appear on those accounts. You can also use Payable on Death (POD) or Transfer on Death (TOD) on accounts to keep that “disinherited” person from knowing about assets moved to other heirs outside of your will.

Blended families face unique challenges. Friction between stepparents and stepchildren can explode, when one parent dies and the second spouse is left without the other parent as a buffer. Tensions that were kept under the surface, may bubble up quickly. Make sure that all the children know what your plans are for your estate, to avoid breaking up the blended family.

Disinheriting someone, for whatever reason, can create hard feelings that remain for generations. If you feel you have no choice, speak with your estate planning attorney to be sure it’s done correctly and lessen the chances of any challenges.

Reference: Next Avenue (Dec. 11, 2018) “How to Disinherit a Family Member”

Indictment Unsealed in Federal Court Against Massive Mail Fraud Scheme

Federal officials announced the indictment of three people who used an old-school method—mail fraud—to scam at least $30 million from thousands of people

Thousands of consumers, many seniors, tricked into paying for promised prizes that never arrived.

MP900202201Federal officials announced the indictment of three people who used an old-school method—mail fraud—to scam at least $30 million from thousands of people across the country. The three, Tully Lovisa, Shaun Sullivan, and Lorraine Chalavoutis, were arrested and arraigned before a magistrate in Federal Court in Islip, New York.

Attorney General Jeff Sessions, Richard P. Donoghue, United States Attorney for the Eastern District of New York, and Peter R. Rendina, Inspector-in-Charge, United States Postal Inspection Service, New York Division (USPIS), announced the indictment, according to a US Department of Justicepress release titled “Three Long Island Residents Arrested In Elder Fraud Scheme”

“Earlier this year, when we announced the largest elder fraud sweep in history, we sent a clear message:  we will hold perpetrators of elder fraud schemes accountable wherever they are,” Sessions said. “When criminals steal the hard-earned life savings of older Americans, we will respond with all the tools at the Department’s disposal–criminal prosecutions to punish offenders, civil injunctions to shut the schemes down, and asset forfeiture to take back ill-gotten gains. Today’s indictment shows we are following through on this promise, and fraudsters everywhere should take note of it.”

The fake prize-promotion mailings said that recipients could receive a large cash prize, in exchange for paying a modest fee. However, none of them did. The scheme began after the Federal Trade Commission (FTC) sued Lovisa in 2010 for sending deceptive prize-promotion mailings.

In response to that suit, a federal court in California enjoined Lovisa in December 2010 and April 2012 from any involvement with prize-promotion mailings. Nonetheless, she conspired with Sullivan and Chalavoutis to create numerous prize-promotion companies using straw owners and aliases to continue defrauding consumers. Chalavoutis opened bank accounts in the name of straw owners and helped conceal the involvement of Lovisa and Sullivan in controlling the operation.

Prosecutors also claim that Lovisa submitted a false compliance report to the FTC, in which he claimed not to be involved in prize-promotion mailings. The additional wire fraud and money laundering charges involve Lovisa’s further deception of the FTC concerning the court-ordered sale of a house he owned in Nevada. According to the indictment, Lovisa arranged a sham sale of the house for $155,500 in 2012 that allowed him to maintain control of it and only give the FTC proceeds of that sale. Lovisa subsequently sold the house in April 2015 for $540,000.

Each charge carries a statutory maximum fine of $250,000, or twice the gross gain or gross loss for the offense. The defendants face up to 20 years’ maximum imprisonment for mail fraud, wire fraud and conspiracy.

Any prize that requires payment is not a prize. Seniors and anyone else should be wary, whether the prize is offered through the mail, an email or a website. Do your homework first—if an offer sounds too good to be true, chances are it’s a scam.

Reference: US Department of Justice (July 11, 2018) “Three Long Island Residents Arrested In Elder Fraud Scheme”

Barred Broker and Megachurch Pastor Charged with Defrauding Elderly Churchgoers

Trusting members of the Houston church were scammed out of millions.

Trusting members of the Houston church were scammed out of millions. Instead of real financial investments, they were sold memorabilia.

MP900202201The pastor of one of the largest Protestant churches in the country, a barred broker and an attorney have been charged by the SEC (Securities and Exchange Commission) with defrauding elderly members out of $3.4 million. They were sold interests in what turned out to be worthless pre-Revolutionary Chinese bonds.

Think Advisor’sarticle, “Megachurch Pastor, Banned Broker Nabbed for Defrauding Elderly Churchgoers,”explains that the SEC’s complaint alleges that, in 2013 and 2014, Kirbyjon Caldwell, senior pastor at Windsor Village United Methodist Church in Houston, and Gregory Alan Smith, a self-described financial planner, who the Financial Industry Regulatory Authority (FINRA) barred from the broker-dealer business after his firing in 2010, targeted vulnerable and elderly investors with false claims that the bonds—collectible memorabilia with no meaningful investment value—were worth millions of dollars.

The SEC also brought actions against their attorney, Shae Yatta Harper. She’s charged with aiding and abetting their fraud.

According to the complaint against Harper, at the pastor’s instruction, “Harper drafted participation agreements in the bonds that were sent to investors,” and she also “controlled the bank account to which most investors sent their funds to invest in this investment opportunity, and distributed investor funds to Caldwell and Smith at their direction.”

Between April 2013 and August 2014, the complaint says the defendants raised at least $3.4 million through a scheme to defraud nearly 30 investors through the fraudulent offer and sale of the bonds. Some of the elderly participants liquidated their annuities and savings to participate in the scheme.

Caldwell has been a board member of various public companies. He currently serves on the board of NRG Energy, which is traded on the New York Stock Exchange. The pastor also acted as a director to a mutual fund complex during the time of the scheme. Caldwell and his wife are the co-owners of LDT LLC, a Wyoming limited liability company that received and held money from investors.

Smith, who is from Shreveport, Louisiana, was associated with a registered broker-dealer from December 1999 to July 2010, according to prosecutors. He was permanently barred from association with any FINRA member in any capacity in July 2010 for commingling investor funds in his business account and for misappropriating investor funds.

Caldwell took advantage of the trust placed in him by elderly churchgoers, exploiting their trust in an example of outright fraud and greed.

Reference: Think Advisor (March 30, 2018) “Megachurch Pastor, Banned Broker Nabbed for Defrauding Elderly Churchgoers”

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