Older Americans 65 years of age or more are increasingly becoming victims of elder financial fraud and abuse. In many states, financial fraud is now the fastest-growing form of elder abuse. Perpetrators can be anyone – from strangers, to family members, to trusted financial advisors and brokers. Often, however, there are obvious warning signs that can prevent elder financial abuse from happening.

The first step to elder fraud prevention is to be vigilant, said Patty Struck, who oversees Wisconsin’s securities division, in a recent Wall Street Journal article. Several years ago, Struck’s office received a call from a man who was concerned about his father’s financial adviser.

According to the article, the son learned that the adviser was helping his father take out a new loan on the house, despite the fact that the mortgage had previously been paid off. The adviser had even driven the father to the bank to help him fill out the paperwork, Struck said in the Wall Street Journal story.

Seeing no financial need for the loan, the son called Wisconsin regulators. As it turns out, the adviser was looting his clients’ accounts. That included not just the caller’s father, but also his grandmother’s money, as well.

Financial scams against the elderly run the gamut. Some of the most common ones include the following:

Phony investments: During a sluggish economy, con artists come out in droves, according to the AARP. Using fear as their motivator, they prey on the elderly with tales of investments that can help them grow their money faster. Many of these financial scams involve phony investment products that promise “guaranteed income” and “consistent high returns.”

Unrealistic returns are a common theme of investment scams, which is why it’s important to do your homework before investing in any financial product.  To find out if the company or person offering the investment is truly legitimate, check the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority’s Broker Check.

Telemarketing scams. The U.S. Department of Justice estimates that rogue telemarketers take in an estimated $40 billion each year, bilking one in six consumers. The AARP says that about 80% of these victims are 50 years of age or older. Scammers use the phone and the Internet (and, increasingly, Facebook) to conduct investment and credit card fraud, lottery scams, and identity theft.

Charging excessive amounts of money for a service. Financial fraud perpetrators and scam artists often convince seniors that they need some type of service, such as a furnace cleaning or weatherization program. Then, they overcharge them hundreds, even thousands of dollars. This tactic also is used for products that many older people find essential to their quality of life, such as hearing aids and safety alert devices.

Remember, elder abuse can happen when you least expect it. Every year, billions of dollars are lost to the financial exploitation of the elderly.

“At least one in 10 elders is exploited,” says Jenefer Duane, founder of the Elder Financial Protection Network, a nonprofit group that aims to prevent financial abuse by creating partnerships and public awareness campaigns. “It’s become so rampant, it’s an epidemic situation.”

If you suspect an elderly person may be the victim or target of financial abuse, contact your local authorities.

Friends, relatives, and caregivers are increasingly doing double duty as perpetrators of elder fraud crimes and investment scams, according to the Consumer Financial Protection Bureau. Since mid-June, the CFPB has been gathering public input on the financial exploitation of older Americans. It has received more than 750 comments so far.

The CFPB plans to use the comments to develop tools to help seniors make better financial decisions to safeguard their assets.

Such efforts are certainly needed. Over the years, financial exploitation of older Americans has continued to grow throughout the United States.

“It’s going to continue and get worse as more seniors move into their so-called golden years,” said Don Blandin, president of the nonprofit Investor Protection Trust (IPT), in an Aug. 25 by the Baltimore Sun. “They are still going to have a lot of wealth that could be taken from them.”

In a study conducted by the IPT two years ago, one in five people age 65 and older revealed that they had been the victim of a financial scam. The problem is likely much worse, however.

In a recent IPT poll of 750 experts, including regulators, social workers, elder-law attorneys and financial planners, nearly 80% said the greatest financial threat to seniors comes from family members.

Relatives aren’t the only perpetrators of elder financial fraud. Many older investors are exploited by the financial brokers and advisers they hire to help them manage their investments.

An August 2012 survey by the Certified Financial Planner Board of Standards found that more than half (56%) of the 2,600 financial planners polled had worked with an older client who had been a victim of deceptive or abusive practices by another adviser. Planners say they encourage victims to report abuse to authorities but estimate that only 5% do so.

 

As baby boomers age, they often accumulate a wealth of financial assets through inheritances or a lifetime of saving for their retirement years. For financial perpetrators, these facts make individuals 65 and older a prime target for financial fraud and abuse.

Robert Govenat knows this all too well. In November 2007, longtime friend and financial planner Algird Norkus told Govenat about an alternative investment for “select people.” Norkus promised that the investment would keep Govenat’s principal safe, while paying 13.5% in annual interest, according to an Aug. 12 story by the Chicago Tribune.

Fearful of what was happening in the financial markets at the time, Govenat agreed to invest with Norkus. That decision would eventually cost Govenat nearly all of his life savings: $225,000. To make matters even worse, Govenat introduced his mother to Norkus and into what ultimately turned out to be a Ponzi scheme. She lost more than $200,000 in the scam.

Norkus pleaded guilty to one count of mail fraud. In March, he began serving 63 months in prison. He also was ordered to pay $4.6 million in restitution to nearly 70 victims, many of them elderly.

Govenat and his mother are just two of thousands of seniors who find themselves the victims of financial exploitation in the United States. In 2011, the state of Illinois, where Govenat and his mother lived, received 6,205 reports of suspected financial abuse and exploitation of senior citizens. The numbers have increased in recent years and are up 14% from 2007. Financial exploitation accounts for nearly 60% of reported abuse cases against older adults.

To combat the problem, law enforcement and state securities regulators are ramping up their efforts to protect seniors. The Department of Health and Human Services recently announced a $5.5 million grant that will be distributed to states for elder abuse prevention. Some states, including Illinois, are enacting new laws aimed at providing better protection of the elderly from financial abuse and fraud. Other states like Maine are holding workshops and seminars to give tips and information to seniors and others on spotting fraud and exploitation.

 

Investors in non-traded real estate investment trusts (REITs) have experienced a host of problems with their investments recently, as eight of the largest non-traded REITs report losing $11.3 billion, or 37% of their value, over the past seven years, according to an analysis by Investment News.

Among the non-traded REITs on that list: Behringer Harvard REIT I, Retail Properties of America, Inland American Real Estate Trust, Wells Real Estate Investment Trust II and Dividend Capital Total Realty Trust.

So what exactly has gone wrong with non-traded REITs? According to several investor alerts issued by the Financial Industry Regulatory Authority (FINRA), a number of non-traded REITs have been misrepresented to investors as safe, low-risk investments. In reality, however, many have proved to be the total opposite.

Other issues cited by FINRA regarding non-traded REITs in general include valuation irregularities, illiquidity, high front-end fees, sudden suspension of distributions, and undisclosed risks.

Investors in the Behringer Harvard Strategic Opportunity Fund I are facing the reality of some of those risks, as they learn their investment’s liabilities now exceed the value of its assets.

It isn’t the first time that investors in the Behringer Harvard family of REITs have had to face bad news. Another REIT, the Behringer Harvard Opportunity REIT I, saw its estimated value decline nearly 50% at the end of 2011 to $4.12 a share from $7.66 a year earlier. The news was even more grim for the Behringer Harvard Short-Term Opportunity Fund I LLP: Its valuation dropped to 40 cents a share at the end of December 2011, down from $6.48 a share as of Dec. 31, 2010.

The concept of “buyer beware” may be taking on a whole new meaning in the investing world under a proposed rule change by the Securities and Exchange Commission (SEC). The change would allow private offerings, hedge funds and other investment vehicles to go from soliciting individual investors behind closed doors to conducting widespread advertising campaigns without restrictions.

For more than three decades, hedge funds and other private investments have been barred from marketing to the public. Now, as regulators propose easing that ban, many fear unsophisticated investors might be lured into investing in products in which they don’t understand the risks.

As reported Aug. 29 by Bloomberg, SEC commissioners voted 4-1 to invite public comment on the proposed change. The proposal itself is driven by the Jumpstart Our Business Startups Act, which repealed a ban on pitching investments like hedge funds and private placements to all but a select few investors.

The Jumpstart Our Business Startups Act was signed into law by President Obama in April, and has drawn criticism from investor-protection groups who believe it could potentially expose more investors to misleading advertisements by some private funds.

“Unsophisticated investors will be inundated with offers of inappropriate investments sold through misleading advertisements,” said Barbara Roper of the Consumer Federation of America in the Bloomberg article. “Fraud will surge in a market already ripe with problems.”

Indeed, private offerings are the No. 1 fraud scheme leading to enforcement actions and investigations, according to the North American Securities Administrators Association. The number of cases involving these types of investments has increased 60% from 2010 to 2011.

The SEC plans to accept comments for 30 days before holding a final vote on the rule change.

It’s been a rocky road of financial trouble for several Behringer Havard non-traded real estate investment trusts (REITs). Behringer Harvard Strategic Opportunity Fund I now appears to be going the same way as the Behringer Harvard Short-Term Opportunity Fund I LLP and Behringer Harvard Strategic Opportunity Fund II – and that way is not good for investors of the products.

Behringer Harvard Strategic Opportunity Fund I is reportedly underwater, with its debts now outweighing its assets. As of the end of last year, the Strategic Opportunity Fund I had fallen by nearly 40% to $4.12 a share. And that may be just the tip of the iceberg.

The Financial Industry Regulatory Authority (FINRA) has issued several investor alerts on non-traded REITs, calling attention to the unique risks, features and fees of the products. Among the concerns is the periodic distributions that help make non-traded REITs appealing can, in more and more instances, be heavily subsidized by borrowed funds and include a return of investor principal. Additionally, early redemption of shares is often very limited, and fees associated with sales of non-traded REITs can be especially high and erode total return.

Eight of the largest non-traded real estate investment trusts have lost $11.3 billion, or 37% of their equity value, over the past seven years, according to a recent analysis conducted by MTS Research Advisors behalf of Investment News. Just this month, CNL Lifestyle Properties Inc., which initially raised $2.7 billion at $10 a share, reported a sharp decline in value. Its share price dropped to $7.31.

Similarly, the Dividend Capital Total Realty Trust, which raised $1.8 billion in equity at $10 per share, revised its value to $6.69 per share last month. In March, the REIT reported its value as $8.45 per share to investors.

In the wake of the problems surrounding many non-traded REITs, more investors of the products are coming forth with claims of mischaracterization and misrepresentation on the part of the brokers who initially sold them on the investments. Indeed, some of the common themes in their FINRA arbitration include the fact that the products were presented as suitable investments for conservative investors (they are not), with their lack of liquidity, fees and other risks never disclosed.

For more on non-traded REITs, read FINRA’s Investor Alert.

If you’ve suffered significant financial losses in a non-traded REIT, including the Behringer Harvard Strategic Opportunity Fund I, Inland Western (Retail Properties of America) and others, please contact us to tell your story.

Investors in the Behringer Harvard Strategic Opportunity Fund I were given news last week news that they likely never thought they would hear. Their investment, which many investors had purchased on the recommendation of brokers who characterized the product as a low risk, safe investment, is now underwater.

The Strategic Opportunity Fund I’s “liabilities are greater than its assets,” said Michael O’Hanlon, chief executive of the funds comprising Behringer Harvard’s opportunity platform, in an Aug. 26 story in Investment News.

First offered in 2005, the Behringer Harvard Strategic Opportunity Fund I raised $65 million and invested in six properties, including an office building in Amsterdam and a hotel on Wilshire Boulevard in Los Angeles.

Non-traded real estate investment trust (REITs) like the Strategic Opportunity Fund have encountered a number of problems over the past year. Among them: Disclosure issues, high front-end fees of sometimes up to 15%, complex fee structures, lack of a secondary market, and restrictions or suspensions of distributions.

Maddox, Hargett & Caruso, P.C. currently is investigating claims by investors who suffered significant losses in the Behringer Harvard Strategic Opportunity Fund I, as well as in other non-traded REITs. If you have a story to tell regarding your experiences, please contact us.

Investors in non-traded real estate investment trusts (REITs) have had to face some unpleasant news recently – from inaccurate valuations to suspended dividends. Now, Behringer Harvard Holdings LLC is preparing to inform clients that its Behringer Harvard Strategic Opportunity Fund I is under water.

As reported Aug. 22 by Investment News, Behringer reportedly will inform investors about the demise of the REIT tomorrow, Aug. 24.

Launched in 2005, the Behringer Harvard Strategic Opportunity Fund I raised $65 million and invested in six properties. Among them: a hotel on Wilshire Boulevard and an Amsterdam office building.

Another Behringer fund, the Strategic Opportunity Fund II, raised $62 million during that same time period. The Strategic Opportunity Fund I’s “liabilities are greater than its assets,” stated Michael O’Hanlon, chief executive of the funds comprising Behringer Harvard’s opportunity platform. The fund is negotiating with banks over one property, the hotel in Los Angeles, that is a “swing issue,” he said in the Investment News story.

The Strategic Opportunity Fund I isn’t the only Behringer Harvard REIT to face problems. At the end of 2011, the Behringer Harvard Opportunity REIT I saw its estimated value decline 46% to $4.12 a share from $7.66 a year earlier. In June, one property in that REIT entered into bankruptcy protection.

Another Behringer REIT has had similar problems. The Behringer Harvard Short-Term Opportunity Fund I LLP had approximately $130 million in assets when it saw its valuation drop to 40 cents a share from $6.48 a share as of Dec. 31, 2010.

In the past seven years, some of the biggest non-traded real estate investment trusts (REITs) have lost $11.3 billion, or 37% of their equity value, according to an analysis of eight REITs by MTS Research Advisors for Investment News. The latest REIT to fall is CNL Lifestyle Properties, which initially raised $2.7 billion at $10 a share and then dropped in value to $7.31.

The Dividend Capital Total Realty Trust faced similar circumstances last month, when it revised its $10 per share price to $6.69 per share. In March, the REIT had stated that its value as $8.45 per share.

Many investors in non-traded REITs have seen their investments deteriorate over the past year. Robert Block, a 74-year-old retiree in Florida, invested more than $400,000 in several non-traded REITs from 2006 to 2008 on the advice of investment adviser who told him the investment’s dividends were attractive and the REITs were “about as safe as anything you could get.”

Block’s $400,000 investment was valued at about $300,000 based on REIT share valuations earlier this year.

“I needed income that I could count on and wasn’t risky,” said Block, who is seeking damages from his investment adviser in an arbitration case with the Financial Industry Regulatory Authority (FINRA).

Dividend cuts also have been an ongoing issue for non-traded REIT investors. In April, KBS Real Estate Investment Trust I told shareholders it was suspending its monthly dividend of 5.25%. It also marked down its share price by 30%, to $5.16.

A one-time prominent seller of private placements in Provident Royalties is shutting its doors, with many of the reps at broker/dealer Milkie/Ferguson moving on to another firm, Berthel Fisher & Co. Financial Services.

As reported Aug. 13 by Investment News, Berthel Fisher picked up 26 of the 40 reps formerly with Milkie/Ferguson. The firm’s CEO and owner, Edward M. Milkie, has been registered with Berthel Fisher since June, according to the Investment News story. He started Milkie/Ferguson in 1986. Fisher said Milkie was not working as a manager at Berthel Fisher but was a producing registered rep.

Milkie/Ferguson filed its broker/dealer withdrawal request with the Financial Industry Regulatory Authority (FINRA) last month. In early August, the B-D lost a $25,000 FINRA arbitration claim unrelated to Provident Royalties.

According to U.S. Bankruptcy Court filings, representatives with Milkie/Ferguson sold at least $4.1 million of Provident Royalties preferred shares. The figure could be much higher, however, in that the bankruptcy filing counted only about half of the $485 million in Provident Royalties shares sold by independent broker/dealers to more than 7,000 investors.

The money raised from the Provident offerings was supposed to be used to purchase oil-and-gas interests such as real estate, leases and mineral rights. In reality, the offerings turned out to be part of an elaborate $485 million Ponzi scheme.

The Securities and Exchange Commission (SEC) filed fraud charges against Provident Royalties and three company founders in the summer of 2009 for their role in the scam.

Since then, many investors have filed arbitration claims with FINRA against the various broker/dealers that sold them the failed products. At least 23 of 60 broker/dealers that sold Provident Royalties shares have closed their doors because of impending lawsuits or other issues related to the fraud.

On July 13, 2012, two former Provident executives, Brendan W. Coughlin, 46, and Henry D. Harrison, 47, were charged by the office of the U.S. attorney for the Eastern District of Texas with one count of conspiracy to commit mail fraud and 10 counts of mail fraud, according to a statement by the Department of Justice. If convicted, each faces up to 20 years in prison.

Previously, FINRA had suspended both Coughlin and Harrison for two years from the securities industry and fined them each $50,000.