Senior citizens are twice as likely as younger Americans to become victims of financial fraud. According to AARP, individuals 60 years of age and older account for 15% of the U.S. population, but represent one-third of all financial fraud victims.

These statistics are even more alarming given the fact that older investors often rely heavily on their financial advisers to invest their money and plan for their retirement years. And many investors put more trust and faith into those financial advisers with “senior designations” because they believe this certification means the adviser is uniquely qualified to market, sell or give advice about certain financial products.

But that is not always the case, says a new report from the Consumer Financial Protection Bureau. Financial advisers can use some 50 senior financial designations to tout various financial products, and not all of these senior designations require expertise or rigorous training. This can be confusing to seniors and make them vulnerable to potential fraud or abuse, says the CFPB.

“Not all financial professionals with titles like ‘retirement adviser’ and ‘senior specialist’ are qualified to help you manage your money,” says Skip Humphrey, head of the Office of Financial Protection for Older Americans, which is part of the Consumer Financial Protection Bureau. “Most financial advisers are well trained reputable professionals. But credentials alone don’t guarantee expertise or the quality of someone’s training.”

The CFPB’s report offers several recommendations to help state and federal regulators better protect seniors from potential investment fraud. Among them:  Create a centralized tool for consumers to research and verify senior designations; SEC tracking of complaints related to senior designations; mandatory disclosures by individuals who claim expertise specific to seniors; and a requirement that holders of senior designations meet and maintain minimum levels of professional standards, including education, accreditation and a minimum standard of conduct.

In the interim, investors of all ages are wise to always be on the lookout for possible red flags when it comes to their investments, including:

• Overly consistent or unusually high returns. All investments carry some amount of risk. The bottom line:  If it sounds too good to be true, it probably is.
• Hard-to-understand investing strategies.  Legitimate financial advisers will take time to thoroughly explain your investments to you and answer any questions that you may have.
• High-pressure sales tactics. Reputable financial professionals will not pressure you to purchase a certain financial product or approach you with an investment whose “window of opportunity” is calls for an immediate decision.
• Guarantees. In the investing world, there are no guarantees. Period. Every investment has some potential risk.

The CFPB report, which you can read in its entirety here, was issued under a mandate from The Dodd-Frank Consumer Protection Act.

Earlier this week, state securities regulators made an appearance on Capitol Hill in an effort to gain support among lawmakers for restricting or ending the use of mandatory arbitration clauses in client contracts with brokers. As reported April 17 by Investment News, one person who needs no convincing on the matter is Securities and Exchange Commissioner (SEC) Luis Aguilar.

During a speech at the North American Securities Administrators Association conference on Tuesday, Aguilar called for an end to mandatory arbitration, saying that he believes the SEC needs to be “proactive” in this important area.

“We need to support investor choice. Allowing investors to take their legal claims to court would “enhance investor protection and add more teeth to our federal securities laws,” Aguilar told the audience.

The same message ­- that investors should be allowed to go to court to settle a grievance against their broker – was reiterated by about 17 NASAA members when they recently met with more than 40 lawmakers.

The Dodd-Frank financial reform law authorizes the SEC to prohibit or curtail compulsory arbitration for clients of brokers and investment advisers. So far, the SEC has not yet addressed the arbitration provision.

“The time is ripe for the commission to act under [Dodd-Frank] to protect the investing public and prevent the further abuse of forced arbitration contracts. This is at the forefront of our agenda,” said Bob Webster, NASAA spokesman, in the Investment News story.

The issue of compulsory arbitration came to a head earlier this year following a ruling by a FINRA arbitration panel who said that they could not stop Charles Schwab Corp. from using the arbitration agreements to prohibit clients from engaging in class actions.

Arbitration backers say that the process is more efficient and less costly than a court proceeding. Opponents argue that class actions provide a better venue than arbitration for disputes involving a small amount of money. The SEC’s Aguilar noted in his speech on Tuesday that clients should not to be forced to give up their access to judicial redress.

“Investors should not have their option of choosing between arbitration and the traditional judicial process taken away from them at the very beginning of their relationship with their brokers and advisers,” Aguilar said. “A client’s right to go to court to recover monetary damages is an important right that should be preserved and kept in the client’s toolkit.”

 

Regulators are taking a much closer look at the sales practices of brokers and firms involving high-risk investments targeting seniors. As reported April 14 by Investment News, the Financial Industry Regulatory Authority (FINRA) currently is gathering data from firms regarding the products they market to seniors, the percentage of revenue they derive from those sales and the designations they are using to market themselves to older Americans.

Elderly individuals are especially vulnerable to offers of yield-chasing and high-risk products, says FINRA chief executive Richard G. Ketchum.

“These are people who have been particularly impacted by reductions in interest rates because the cash coming from their investments often is a significant supplement to whatever 401(k), pensions and Social Security they have,” he said in the Investment News story.

During a compliance conference held last week at the Securities and Exchange Commission (SEC), panel participant Mercer Bullard, president of Fund Democracy and professor of law at the University of Mississippi, predicted that the United States is facing what he calls a “senior crisis” posed by the risk of seniors’ outliving their assets and their declining ability to manage their money.

“What we’re looking at is a massive increase in senior misery,” Bullard told the audience.

Bullard attributes some of the reasons behind this senior crisis to the increasing sophistication and complexity of today’s financial products and investments.

“There’s probably someday going to be a good argument that anyone over 75 shouldn’t be sold anything that is outside of a predetermined list of fairly simple funds, meaning low volatility and low risk,” he said in the Investment News story. “Otherwise, we’re going to see millions of seniors living on Social Security who are not expecting that to be their standard of living.”

Real estate powerhouse Tony Thompson and the independent directors of a non-traded real estate investment trust are going head to head over why the dividend of the TNP Strategic Retail Trust was cut last month and what the management of the REIT is going to be moving forward.

As reported April 12 by Investment News, Thompson is known among independent broker/dealers for his role as a leading seller of tenant in common 1031 exchanges before the real estate crash of 2007-08.

Earlier this year, Thompson and the broker/dealer manager of the TNP Strategic Retail Trust, TNP Securities LLC, found themselves at the center of an investigation by the Financial Industry Regulatory Authority (FINRA) for failing to deliver documents in a FINRA inquiry.

In a letter to investors dated March 27, Thompson, who is chairman and co-chief executive of the TNP Strategic Retail Trust, said the three independent directors on the board, Jeffrey Rogers, Phillip Levin and John Maier, “voted to not pay [first] quarter 2013 dividends. I opposed this decision and was not part of the board meeting.”

According to the Investment News article, Thompson stated in the letter – which was not filed with the Securities and Exchange Commission (SEC) – that the distribution cut was the result of the directors inflating expenses.

“I believe extraordinary expenses are one of the primary causes for the independent directors’ decision not to pay a current distribution,” Thompson wrote. “These expenses include attorney fees related to the independent directors’ ‘special committee’ activities, the special committee’s director fees, default interest” and other costs, including salaries of accountants.

The board has since filed a shareholder letter with the SEC refuting Thompson’s assessment and that his letter was riddled with errors, including the actual number of properties owned by the REIT.

The board also is trying to fire as the REIT’s manager another company controlled by Thompson, TNP Strategic Retail Advisers LLC, and find a new adviser.

 

 

Earlier this week, a federal judge rejected an attempt by Wells Fargo & Co. to throw out a class action lawsuit brought by investors who say the bank failed in its role as a trustee for debt issued by Medical Capital Holdings. The decision by Judge David Carter of the U.S. District Court for the Central District of California clears the way for a possible trial against Wells Fargo and its involvement with Medical Capital.

As reported April 3 by Reuters, investors allege that Wells Fargo was supposed to disburse money so that Medical Capital could offer financing to medical care providers by purchasing their outstanding receivables. Instead, investors contend Wells Fargo failed to stop Medical Capital from diverting investors’ money to such items as non-medical projects and excessive administrative fees.

In July 2009, Medical Capital, a medical-receivables company, collapsed after the Securities and Exchange Commission (SEC) charged it with fraud. At that time, Medical Capital had issued close to $2.2 billion in private-placement notes.  A court-appointed receiver later found that investors lost between $839 million and $1.08 billion through Med Cap’s use of a “Ponzi-like scheme” to extract excess fees from investors.

Joseph Lampariello, Medical Capital’s former president, pleaded guilty last year to criminal wire fraud related to the alleged scheme. He has yet to be sentenced.

In February, the Bank of New York Mellon, another Medical Capital trustee, agreed to pay $114 million to investors.

The cases are all in the U.S. District Court, Central District of California. The master case is Medical Capital Securities Litigation, No. 10-ml-02145. The Wells Fargo cases are Masonek et al v. Wells Fargo Bank et al, No. 09-1048; Bain et al v. Wells Fargo Bank et al, No. 10-0548; and Abbate et al v. Wells Fargo Bank et al, No. 10-06561.

 

For some ex-spouses, the marriage vow of “for richer or poorer” weighs heavily on the side of poorer. More cases are coming forth involving ex-spouses stealing from each other through a brokerage account. Recently, Maddox Hargett & Caruso, P.C. represented a client whose ex-husband falsified various documents and transferred funds from several Wells Fargo accounts into several E*Trade accounts without his former wife’s knowledge or consent.

An arbitration panel of the Financial Industry Regulatory Authority (FINRA) ruled in favor of the victim, holding Wells Fargo and E*Trade liable to her for more than $80,000 in compensatory damages.

In addition, the FINRA arbitration panel ruled that Wells Fargo Advisors and E*Trade Securities had to pay the investor $11,960 in interest, as well as $22,500 in attorney fees and $4,500 in arbitration hearing session and fees.

FINRA’s decision sends a clear and strong message that if one spouse “steals” money from another spouse’s brokerage account, the brokerage firm involved could, in fact, be held liable for any financial losses that may occur as a result.

It seems the bad news just keeps getting worse for longtime real estate dealer Tony Thompson. Now, Thompson’s non-traded REIT – the TNP Strategic Retail Trust – is cutting its dividend.

In a recent filing with the Securities and Exchange Commission (SEC), the REIT cited short-term liquidity issues, including an accelerated maturity date of loans, lender fees and the cost of potential litigation with lenders, as the cause behind the halt in distributions.

As reported March 19 by Investment News, the loan compliance issues with its lenders means the TNP Strategic Retail Trust will not pay a dividend in the first quarter of 2013 and may not pay any type of distribution for 2013.

“Although our board of directors will continue to evaluate our ability to resume paying distributions, given the uncertainties noted, stockholders should not assume a resumption of distribution payments during the remained of 2013,” the company said in the SEC filing.

It was only a few short months ago that Thompson was touting TNP’s rising value to potential investors. In January, Thompson sent a note to broker/dealers declaring that the net asset value of the TNP Strategic Retail Trust was 6% higher than its share price. That kind of discrepancy between a REIT’s selling price and its NAV could be dilutive to shareholders and provide brokers with a strong sales pitch to potential investors.

That’s not the only problem facing Thompson. In January, after raising money in 2008 and 2009 for Thompson National Properties LLC, the company defaulted on $21.5 million of the private notes from that offering. Last month, the Financial Industry Regulatory Authority (FINRA) announced it was investigating Thompson and his broker/dealer, TNP Securities LLC, for failing to turn over documents, thus potentially violating FINRA rules.

Suitability, misrepresentation and complex investment products like structured notes, non-traded REITs, and private placements played a key role for the increase in fines and disciplinary actions brought by the Financial Industry Regulatory Authority (FINRA) against firms and brokers in 2012. Last year saw 4% more disciplinary cases than in 2011, as well as an increase in fines by 15%.

A recent study conducted by Sutherland Asbill & Brennan LLP showed 2012 as the fourth consecutive year of growth in the number of cases filed by FINRA and the second consecutive year of growth for the amount of fines.

In total, FINRA filed 1,541 disciplinary actions in 2012 and assessed $78.2 million in fines, the study says.

In addition to the increase in fines, the study revealed that FINRA is becoming more aggressive when it comes to getting restitution for aggrieved investors. Last year, FINRA ordered firms and representatives to pay a record $34 million in restitution, up 80% from $19 million in 2011.

Leading the list of enforcement actions by FINRA in 2012 were suitability and due-diligence cases. A total of 117 suitability cases were brought by FINRA in 2012, a 10% increase from the 106 cases reported in 2011 and nearly double the amount in 2008 and 2009.

Of the 62 due-diligence cases filed in 2012, FINRA issued $12.8 million in fines.

Failed deals in non-traded real estate investment trusts (REITs) and private placements have plagued more investors in recent years, with problems ranging from suspension of share redemptions to inaccurate valuations to outright fraud. Such issues have garnered the attention of the Financial Industry Regulatory Authority (FINRA), which is now investigating real estate developer Tony Thompson and his broker/dealer, TNP Securities LLC, for allegedly failing to turn over certain documents to FINRA.

By failing to turn over documents about his business to FINRA, Thompson is in violation of industry rules that require firms and individuals to produce information when asked to do so by FINRA.

As reported March 12 by Investment News, FINRA initially made inquiries regarding the documents two months ago. At the time, Thompson was attempting to “goose sales for a non-traded real estate investment trust, the $272 million TNP Strategic Retail Trust Inc.”

During that same month, Thompson sent a note to broker/dealers hawking the TNP Strategic Retail Trust and proclaiming that its net asset value was 6% higher than its share price. Specifically, Thompson’s note read: “Closing Feb. 7, 2013! Necessity retail: Now is the time!”

As the Investment News article points out, discrepancies between a REIT’s selling price and its NAV could be dilutive to current shareholders and provide brokers with a pitch laden with urgency to sell.

That’s not the only problem on Thompson’s plate, however. He’s also dealing with huge financial troubles, including the default on $21.5 million of private notes that he sold in 2008 and 2009 to raise money for Thompson National Properties LLC.  Last year, that venture suspended interest payments to investors in a private placement – i.e. the TNP 12 Percent Notes Program – that was designed to raise capital for the firm. Many of the investors in the TNP 12 Percent Notes Program reportedly were elderly, retired or conservative investors living on fixed incomes.

According to a July 10, 2012, article by Investment News, 22 independent broker/dealers had agreements to sell the notes, which required a minimum investment of $50,000. Brokers earned a 7% commission on sales of the notes, according to a filing with the Securities and Exchange Commission (SEC).

If you invested and suffered financial losses with Tony Thompson, the TNP 12 Percent Notes Program, Thompson National Properties LLC, TNP Securities, or TNP Strategic Retail Trust, contact us to tell your story.

The Financial Industry Regulatory Authority (FINRA) has fined Ameriprise Financial Services and its affiliated clearinghouse firm, American Enterprise Investment Services (AEIS), $750,000 for failing to properly supervise wire-transfer requests and the transmittal of customer funds to third-party accounts.

In February 2011, FINRA barred former Ameriprise registered representative Jennifer Guelinas for converting approximately $790,000 from two customers over a four-year period by forging their signatures on wire transfer requests and disbursing the funds to bank accounts she controlled. Following the investigation, Ameriprise paid full restitution to the two customers who were affected.

FINRA found, however, that both Ameriprise and AEIS failed to establish, maintain and enforce supervisory systems designed to review and monitor the transmittal of funds from customer accounts to third-party accounts. According to FINRA, neither Ameriprise or AEIS had policies or procedures in place to detect or prevent multiple transmittals of funds going to third-party accounts. Instead, they relied on a manual review of wire requests without the benefit of exception reports that could have helped to discern suspicious patterns.

Ameriprise and AEIS also failed to adequately track or further investigate wire transfer requests that had been rejected, FINRA said.

FINRA went on to state that Ameriprise failed to detect Guelinas’ scheme despite the multiple “red flags” that were present. For instance, Guelinas submitted three requests to wire funds from a customer’s account to a bank account that appeared to be under Guelinas’ control. Ameriprise processed the forged wire transfer requests and disbursed the funds without any inquiries.

In addition, there were at least three other occasions when Ameriprise initially rejected Guelinas’ forged wire transfer requests, including one for an apparent signature discrepancy. Guelinas, however, simply resubmitted the requests in question on either the same day or the next day. Guelinas also forged and submitted a wire transfer request after Ameriprise had begun to investigate her misconduct.

In all of the instances, Ameriprise disbursed the customer funds as Guelinas directed. Even after Ameriprise had terminated Guelinas, she submitted another forged wire transfer request. Ameriprise again disbursed the customer’s funds to a bank account Guelinas controlled; however, the firm realized its mistake in time to prevent Guelinas from accessing those funds.

“Ameriprise and its affiliated clearing firm missed numerous supervisory red flags, including the fact that two of the wire transfers went to accounts in Guelinas’ name. Firms must have robust supervisory systems to monitor and protect the movement of customer funds,” said Brad Bennett, FINRA Executive Vice President and Chief of Enforcement.

Ameriprise signed FINRA’s Letter of Acceptance, Waiver and Consent without admitting or denying the accounts.