Thus far this series of articles has addressed the following issues:
Elder Investment Fraud: This is the process by which unscrupulous brokers single out senior citizens for fraudulent investment purposes. This usually entails placing the elderly investor in grossly unsuitable investments, of an aggressive and/or high risk nature, for the purpose of generating high brokerage fees and commissions.
Affinity Fraud: This is when a stock broker or financial adviser gains the trust of the customer by using his status as a member of a group–such as a church or community association–with which the customer is also affiliated. The broker then uses the trust arising from group affiliation to defraud the investor.
Reasons Why Seniors Are Victims: Senior citizens continue to be vulnerable for a number of reasons. They tend to be too trusting. They tend to have less time and energy to pursue a legal claim. They may not realize they have been defrauded due to a diminished memory. They may not even understand the complexities of their particular investment or investment strategy. Unfortunately, the health problems of elderly clients make them easy targets. While the elderly customer is in a vulnerable position due to illness, the broker may take advantage of her by placing her in unsuitable, high-commission investments.
Broker Duties to Senior Investors: We also discussed some commen information all brokers should convey to elderly investors. This included the benefits of diversification and asset allocation, the disclosure of the risks associated with the recommended investment strategy, and an honest discussion on the investors expected annual rate of return, expected withdrawals and risk tolerance.
Having covered the above subjects, it is now time to look at the actual legal remedies available. As a general matter, the courts recognize age as a factor in determining the legal ramifications of certain relationships, particularly in the context of the duty of care owed by other persons in their dealings with the elderly. Thus, for example, in determining generally whether a fiduciary relationship exists between two persons, the relevant factors include:
- The degree of kinship between the parties.
- The disparity in age, health, mental condition and education and business experience between the parties.
- The extent to which the “servient” party entrusted the handling of its business affairs to the “dominant” party and placed trust and confidence in the “dominant” party.
Most states provide statutory relief for defrauded seniors. Under North Carolina General Statute, Section 14-112.2, it is a criminal felony to exploit an elder or disabled adult. The statute provides:
(b) It is unlawful for a person:(i) who stands in a position of trust and confidence with an elder adult or disabled adult, or (ii) who has a business relationship with an elder adult or disabled adult to knowingly, by deception or intimidation, obtain or use, or endeavor to obtain or use, an elder adult’s or disabled adult’s funds, assets, or property with the intent to temporarily or permanently deprive the elder adult or disabled adult of the use, benefit, or possession of the funds, assets, or property, or to benefit someone other than the elder adult or disabled adult.
North Carolina law provides further statutory support under the “Protection of the Abused, Neglected, or Exploited Disabled Adult Act.” N.C. Gen. Stat., Sec. 108A-99. The legislative intent and purpose of this statute is “to protect the increasing number of disabled adults in North Carolina who are abused, neglected, or exploited…” N.C. Gen. Stat., Sec. 108A-100. “The word exploitation means the illegal or improper use of a disabled adult or his resources for another’s profit or advantage.” N.C. Gen. Stat., Sec. 108A-101(j).
Due to the felony status under N.C. Gen. Stat., Sec. 14-112.2, punitive damages are warranted. “Punitive damages in fact serve as a fine for what in effect is criminal conduct.” Tudor Associates, Ltd. v. AJ Services, Inc., 843 F.Supp. 68, 80 (E.D.N.C. 1993). Moreover, under N.C. Gen. Stat., Sec. 1D-5, “Punitive damages may be awarded, in an appropriate case and subject to the provisions of this Chapter, to punish a defendant for egregiously wrongful acts and to deter the defendant and others from committing similar wrongful acts.” As such, the defrauded investor may be entitled to an award of punitive damages.
Many other states have similar Elder Abuse statutes. For instance, there is the California Elder Abuse and Dependant Adult Civil Protection Act. See Cal. Welf. & Inst. Code, Sec. 15610.27 (2003). Under this statute, a broker commits financial abuse on a senior citizen by taking appropriating, and retaining the senior citizen’s investment and retirement monies for a wrongful use and/or with the intent to defraud. See Cal. Welf. & Inst. Code, Sec. 15610.30 (2003). If the broker’s financial abuse was due to recklessness, oppression, fraud, or malice and caused the elderly customer injury and financial damages, the victim is entitled to, in addition to all other remedies provided by California law, compensatory and punitive damages, reasonable attorney fees and costs pursuant to Cal. Welf. & Inst. Code, Sec. 15657.50 (2003).