Combatting Financial Exploitation of the Elderly: Fraud Against the Elderly

The elderly, especially those who live alone and maintain control of their own affairs, are frequent targets of fraudsters and others who would take advantage of them. There are laws in most states to “protect” the elderly, but these laws tend to empower law enforcement officials and/or enable state or county protective agencies to take law enforcement or administrative action. They fail, in many cases, to stop the financial exploitation of the elderly person, and they do not provide a means for the individual who was the subject of financial exploitation to recover his or her financial losses.

We have even represented an individual who was the victim of an adult protective services agency. In that case, the state, in an ex parte proceeding, obtained control of an elderly businessman’s businesses and appointed a conservator to run them. The conservator then retained a minority shareholder—who was averse to the elderly businessman. For a couple of months, this businessman was frozen out of his own decision making and the decision making for his businesses. Fortunately, after filing a federal civil rights action, we were able to have the original action dismissed and management of the elderly businessman’s businesses returned to him.

More often, we are told that law enforcement officials and social workers fail to take actions to protect an elderly victim. Even when they do, the emphasis is on the prosecution of the perpetrator rather than recovery of the victim’s losses from the perpetrator. There may be things that can be done on an elderly victim’s behalf, but it is necessary to act promptly.

Recognizing Financial Abuse.

Unfortunately, the financial abuse of an elderly person can come from anywhere. According to the National Institute on Aging, elderly residents of nursing homes and personal care facilities are often exploited through the taking of their personal property, the forgery of checks or other items, the use of credit cards, or the unauthorized access of banking accounts. A nursing home or personal care facility may charge unauthorized or illegal fees, while nurses or nursing assistants may convince an infirm patient to part with items of value or cash. Often times this type of financial exploitation is difficult to detect.

There is the romance scheme, where someone will pretend to fall in love with a much older man or woman and use the supposed relationship to obtain cash and other things of value. In one case in which we were involved, the perpetrator of a romance scheme—at least temporarily—was successful in having a house transferred to her. Romance schemes frequently involve defendants located overseas, and it can be difficult to recover funds that have been lost.

Fraudsters also lurk in churches, synagogues, mosques, and other places of worship. Often termed “affinity fraud”, these individuals will prey upon common religious beliefs and a sense of community to develop an exploitative relationship. This may involve a loan to a fellow “believer” or an investment in a business. Often times these transaction will occur without any form of written agreement, and if the elderly victim passes away, it may be difficult to determine what the transaction was.

Financial advisers, investment professionals, and other people in the financial services industry can and do take advantage of elderly individuals, even when they have represented them for years or decades. Accountants and attorneys are also sometimes involved in the financial exploitation of elderly clients. There are certainly many fine individuals who work in this area, and I do not want to paint with too broad a brush, but it is one place where friends and relatives of an elderly individual should examine closely.

Which brings me to the next group of potential perpetrators of financial exploitation: friends and family. This can be a particularly difficult area to locate financial fraud. In nearly all cases, family members will split over the relationship the allegedly exploited person had with the alleged perpetrator. One’s niece may say that she was the only person who ever saw her uncle in a nursing home while her cousin might say the uncle had no relationship with that particular niece. The truth in these situations can be elusive.

However, there are some signs discerning relatives can watch for:

• Sudden, unexplained changes in spending.
• New loans or credit cards that seem unnecessary.
• Assets that disappear without explanation—cash, vehicles, securities, jewelry, etc.
• New people given Powers of Attorney.
• New, younger friends and love interests.
• Desires to travel to new places, particularly overseas, where there is no attachment.
• Excessive visits by financial professionals.

None of these factors provides proof of financial exploitation; however, they are “red flags” that should be investigated.

Preventing Financial Exploitation of Elderly Friends and Family Members.

Protecting an elderly friend or family member from financial exploitation can be far more difficult than one might think. A quote attributed to Mark Twain says “It is easier to fool people than it is to convince them that they have been fooled.” We often work with victims of securities frauds, and, in many cases, the victims of a fraudulent scheme will deny that they have been defrauded even when the evidence to the contrary is overwhelming. They will often blame market forces or government intervention rather than acknowledge they were a victim of a fraud themselves, perhaps thinking that to acknowledge their victimhood would be embarrassing.

This phenomenon is worse when it comes to the elderly where there may be a real fear of a loss of independence if they are discovered to have trusted someone they should not have. They may be suffering from underlying physical problems that are causing them to question their own abilities. They may be suffering from early dementia or Alzheimer’s disease. They may have recently suffered a stroke and may be worried about how well they really are functioning.

Sometimes well-meaning children and relatives can be too aggressive in addressing these issues, causing the elderly parent or relative to simply shut down. What can be done?

• Maintain a relationship with the potential victim of elder abuse. Visit often and be supportive.
• Be sensitive to potential victim’s psychological condition, consulting with physicians and psychologists as necessary.
• Monitor the potential victim’s financial expenditures.
• Ask banks and financial institutions to report suspicious activities.
• Ensure that caregivers or others are not isolating the potential victim by keeping the victim away from other people.

If there is a suspicion of financial abuse, family members should immediately contact the local adult protective services agency, law enforcement, and the state attorney general. Theoretically, at least, these agencies have employees with specialized skills in working with the elderly and will be able to discuss issues with the potential victim in a non-threatening manner. If the potential fraudster has a criminal record or has been involved in the financial exploitation of the elderly in the past, they will be in a position to take decisive action.

The one thing that family members should not do is attempt to investigate the matter themselves or try to resolve matters with the potential fraudster. While it is understandable that family members may want to assist an elderly relative, they can do a lot more harm than good. By alerting a potential fraudster to a possible problem, they unwittingly give the fraudster an opportunity, in many cases, to cover his or her tracks, to falsify documents, or even obtain an affidavit from the purported victim absolving them of liability.

If there is significant financial loss, they may wish to consult with an attorney who is experienced and knowledgeable in the area of fraud investigations and litigation. An attorney may be able to bring an action for fraud, breach of fiduciary duty, abuse of a confidential relationship or undue influence. There may be fraudulent transfers that have to be undone. Mental capacity may be an issue, and guardianship or conservatorship litigation may be necessary. A supposed fraudster may even become involved in the litigation in an effort to become a guardian.

These issues may arise before or after the exploited person has passed away, and they may be litigated in orphan’s court, in a state court of general jurisdiction, or in a U.S. district court. Often times, expert testimony will be necessary. In short, there is a likelihood of complex litigation.

Actions Against Aiders and Abettors.

Too often, the fraudster who has financially exploited the vulnerable victim will be a criminal with little to no assets. When he or she is caught, they are likely to be prosecuted and sent to prison where their already limited ability to pay evaporates. While the punishment of wrongdoers is an important part of any criminal justice system, compensating victims for their losses is equally important.

In any sophisticated scam, it is likely that there were those who aided or abetted the fraudster. Who could these individuals be? Banks, law firms, accounting firms, and other professionals often allow the fraudster to succeed. They may repeat or amplify false statements that were made by the fraudster. In some instances, they may have assisted the fraudster in an effort to avoid financial loss themselves.

Aiding and abetting are criminal law concepts that do not directly result in civil liability. However, they may themselves engage in conduct that is actionable. In Thornwood, Inc. v. Jenner Block, for example, a court found that a law firm could be held liable for remaining silent concerning representations a client made which the law firm knew to be false. In Kurker v. Hill, a court found that a firm could be held liable for a breach of fiduciary duty. In Colonial BankGroup, Inc. v. PricewaterhouseCoopers, LLP, a federal judge in Alabama found one of the big four accounting firms liable for failing to detect $2 billion in client fraud.

One of the more common areas of fraud involves financial services professionals. The Financial Industry Regulatory Authority (FINRA) regulates these financial professionals through the application of a variety of FINRA and SEC Rules, federal and state laws, and other common law causes of action. Frequently, the agreement between a brokerage firm and a client requires these claims to be resolved through arbitration. These arbitrations provide a means for investors, including elderly investors, to recover their losses.

Retaining the Right Attorney.

Fraud is a complex, specialized, and muti-faceted area of the law that intersects with many other causes of action. It is not something that should be undertaken by someone with no legal training. Even experienced lawyers who do not regularly practice in the area of fraud should not undertake a fraud case. There are also specific statutes at the state level that specifically protect the elderly. These statutes can interact with other statutes to increase potential liability.

We have decades of experience in the prosecution and defense of fraud allegations. We understand what actions constitute fraud, and, just as importantly, what actions do not constitute fraud. We also understand the financial exploitation of the elderly and what can be done to protect our elderly citizens.

If you have any questions or suspect the financial exploitation of the elderly, please give us a call.