Senior Investors

Senior Investor’s Claim Against Wells Fargo is Remanded on Fraud in Execution by California Court of Appeal

Published on: December 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The California Court of Appeal has remanded a lawsuit filed by an elderly woman accusing Wells Fargo of defrauding her and her husband. The case now goes back to the Los Angeles Superior Court, where a judge must determine whether Wells Fargo engaged in fraud when its employees executed its agreement with the couple.

Los Angeles Superior Court Judge Shook had previously concluded that the arbitration clause in the brokerage agreement between Ronnie and Ira Brown and Wells Fargo Bank, NA was unconscionable. However, he had decided that it was up to a jury to decide whether constructive fraud occurred. If Shook now decides that Wells Fargo did engage in the alleged fraud, the arbitration clause and any other portion of the agreement could then be determined unenforceable.

Sometime between 2003 and 2004, Wells Fargo assigned company vice president and trust administrator Lisa Jill Tepper to serve as Ira and Ronnie Brown’s “relationship manager.” Ira Brown, who was 93 at the time and suffering from health issues (he has passed away since), founded the Save-On Drug chain. His wife, Ira, was 81.

Tepper, who is now a defendant in this case, visited the Browns regularly to assist with their financial paperwork. She eventually began providing the couple with investment advice. At one point, she recommended that they open a Wells Fargo brokerage account because she believed that their other investments were inappropriate due to their advanced age. Through Tepper, the couple began working with Wells Fargo stockbroker Jack Harold Keleshian, who is now also a defendant in the case.

With Tepper and Keleshian’s help, the couple opened up a number of investment accounts, including a “Brown Family Trust.” An arbitration clause was included among the documents.

In 2006, Ronnie sued Wells Fargo. She claimed that when she was under duress while caring for her ailing husband, the bank pressured her into selling nearly 75,000 stock shares at $24.71. She says Keleshian told her that if she didn’t sell, the stock’s value would drop dramatically.

Instead, the stocks increased in value while Ronnie experienced an increase in capital gains taxes. Ronnie claims her damages were over $1 million (including Wells Fargo’s commission from the stock sale). Wells Fargo wants to resolve the dispute through arbitration.

Related Web Resources:

C.A. Orders Hearing on Claim Bank Defrauded Drug Chain Founder, MetNews.com, November 26, 2008
Brown v. Wells Fargo Bank N.A., Cal. Ct. App., No. B196258 (PDF)
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NASAA and AARP Launch “Free Lunch Seminar Monitor Program” to Protect Seniors From Investment Fraud

Published on: October 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association and the AARP are inviting senior investors to take part in their “Free Lunch Seminar Monitor program.” Both organizations say the program will give investors a chance to report any unscrupulous promoters of inappropriate investments to security authorities in their state.

According to statistics, 80% of senior investors (age 60 and above) were invited to attend at least one free investment seminar over the last three years. Three out of five elderly investors received six or more invitations to these free seminars.

The free lunch seminar invitations usually indicate that seniors who attend will be fed a free, expensive lunch while they listen to information about how to invest and manage their money during retirement.The Financial Industry Regulatory Authority and federal and state securities regulators, however, say that these lunches are actually sales presentations, which consist of 50% “misleading” or “exaggerated” advertising claims and 25% unsuitable investment recommendations.

Last year, the SEC and securities regulators released their joint findings pertaining to “free lunch” seminars, including:

• The lunch seminars, while touted as “educational,” were actually held with the purpose of opening new investor accounts and (eventually) selling investment products.

• 59% of firms that oversaw the free seminars exhibited weak supervisory practices.

“Free Lunch Seminar Monitor Program”
Investors who would like to be part of the Free Lunch Seminar Monitor Program can bring a checklist (see below) to the lunch seminar with questions about the presenters and the products being promoted. The information from these forms will allow state securities regulators to determine whether the promoters and the information they are presenting are in compliance with securities laws and regulations.

The program gives investors an opportunity “fight back” against the promoters of these “free seminars” and gives securities regulators another way to protect seniors from investment fraud.

AARP and NASAA Launch “Free Lunch Seminar Monitor” Program, AARP.org
“Free Lunch” Investment Seminar Examinations Uncover Widespread Problems, Perils for Older Investors, SEC.gov, September 10, 2007

Related Web Resources:
What to Listen for Checklist, AARP.org (PDF)

North American Securities Administrators Association

“Free Lunch” Investment Seminars-Avoiding the Heartburn of a Hard Sell, FINRA Continue Reading ›

2nd Circuit Reinstates TIAA-CREF Enterprises Inc. Faces Negligence and Breach of Fiduciary Duty Claims

Published on: August 28, 2008 | by Shepherd Smith Edwards & Kantas, LLP

TIAA-CREF Enterprises Inc. is once more facing claims of negligent misrepresentation and breach of fiduciary duty following the US Court of Appeals for the Second Circuit’s reinstatement of the claims. The appeals court, however, did affirm the District Court’s decision to dismiss the 1934 Securities Exchange Act Section 10(b) and New York fraud claims.

Per the court’s account, plaintiff Vera Muller-Paisner filed the lawsuit against TIAA-CREF Enterprises Inc. and other entities. Mueller-Paisner was the executrix of the estate belonging to a woman named Mary Engel, who had purchased a fixed annuity from the defendants for about $1.2 million. The annuity was to pay Engel $8,000 each month until her death.

Engel would have recovered the purchase price in 12 years, but she
died six months after buying the annuity and had only collected $48,000. Muller-Paisner discovered that most of Engel’s assets had been used to buy the annuity. This made it impossible for the executrix to dispose of the decedent’s estate, per Engel’s will.

While the district court had dismissed the entire lawsuit, this month, the appeals court affirmed part of that ruling and reversed it in part.

The 2nd circuit says it dismissed common law fraud and federal securities claims because the plaintiff did not sufficiently allege both a scienter and that there had been a materially misleading misstatement or omission. The appeals court, however, also ruled that Muller-Paisner’s allegations were enough to withstand any motions to dismiss the negligence and breach of fiduciary duty claims. It noted, among the plaintiff’s allegations, claims by the defendants that they have the resources and system in place to help customers buy the best options available to them that will maximize their income and allow them to support their post-retirement lives.

Related Web Resources:

US Court of Appeals for the Second Circuit
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Senators’ Bill Calls for Added $50,000 Fine For Defrauding Elderly Investors

Published on: July 15, 2008 | by Shepherd Smith Edwards & Kantas, LLP

US Senators Herbert Kohl (Wisc) and Robert Casey (Pa) have introduced the Senior Investor Protections Enhancement Act, a bill that would add a $50,000 fine to any penalties that came with defrauding investors over 62 years of age. The legislation defines a senior as anyone 62 years of age or older. This is the age group that the majority of retirement savings can now be accessed for investments.

The two men emphasized that while seniors over 65 control about $15 trillion, over 50% of complaints made to state securities regulators come from this age group.

The bill proposes the additional penalty for every securities law violation that directly targets or is committed against a senior investor. However, it won’t intervene with situations involving legitimate investment advisors that make appropriate investment recommendations to their elderly clients.

Ex-WFG Investment Stockbroker Accused of Allegedly Defrauding Over 500 Senior Investors Agrees To Disgorge Ill-Gotten Earnings

Published on: May 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Sidney Mondschein, a former WFG Investment stockbroker, must disgorge $53,000 in ill-gotten gains he allegedly obtained when he defrauded over 500 senior investors by selling their confidential data to insurance brokers. Last month, Mondschein settled Securities and Exchange Commission charges before the U.S. District Court for the Northern District of California.

By settling, the SEC says that the former broker is not admitting to or denying the charges. As part of his agreement, Mondschein agreed to a bar preventing him from associating with any dealers or brokers for five years. He is also permanently enjoined from violating the 1934 Securities Exchange Act’s Section 10(b) and Rule 10b-5, as well as Regulation S-P. He must also pay a $45,000 penalty.

The SEC complaint has alleged that Mondschein illegally sold for profit the confidential data of over 500 clients, almost all of them senior citizens, to six insurance agents. Information included contact information and, sometimes, the dollar figure that an investor had spent on the last annuity. This sale allowed the insurance brokers to sell the investors more annuity products, even though the majority of them already had purchased equity-indexed or fixed annuities.

FINRA Says Ex-Morgan Stanley Stockbroker Misappropriated Nearly $400,000 From 97-Year-Old Widow

Published on: February 27, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is charging stockbroker John Mullins with misappropriating nearly $400,000 from an elderly widow and her charitable foundation. Esther Weil, a 97-year-old widow, died earlier this month. She was living in a nursing home. Mullins was her stockbroker for over 20 years.

Mullins allegedly tried to conceal his status with his elderly client’s charitable foundation. John and his wife Kathleen were the trustees of Weil’s nonprofit foundation-a relationship that is prohibited by Morgan Stanley’s firm policies. Morgan Stanley employed the Mullins from 2002-2006. The company fired them after it was discovered that they were violating company policies.

John is accused of allegedly misappropriating funds from his employer for improper expenses, making misstatements on his firm’s yearly compliance questionnaires and Form U4, and accepting an unauthorized $100,000 loan from a client.

Allianz Life Insurance Settles Inappropriate Fixed Annuity Sales Allegations for $10 Million

Published on: February 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Allianz Life Insurance Co. of North America and California’s insurance department have reached a settlement agreement over allegations that Allianz engaged in inappropriate fixed annuity sales.

Allianz Life will pay $10 million: $3.3 million to the California insurance department, $3 million to investments in the California Organized Investment Network, and $3.75 million, over a five-year period, to California’s Life and Annuity Consumer Protection Fund.

The agreement was reached after the California department of insurance’s market conduct examination results showed that Allianz Life had acted deceptively when it replaced 126 annuities for 84- and 85-year old senior investors.

Senior Vice President of Questar Capital (now Allianz Insurance) Claims He’s a Victim of Ponzi Scheme

Published on: January 3, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Questar Capital Corp’s senior vice president of mergers and acquisitions claims he too was victim of a $250 million alleged Ponzi scheme that affected up to 1,200 investors-many senior citizens residing in Michigan, California, Illinois, New York, Florida, New Jersey, and Ohio.

The Securities and Exchange Commission charged Edward May and E-M Management Co. LLC with selling bogus investments which involved shares in fake Las Vegas casino and resort telecom transactions. “Investment seminars” were held to persuade investors to buy shares. The investors were told they would receive monthly returns for the next 12-14 years.

It turns out that there were never any telecom contracts with any Las Vegas resorts, hotels, and casinos. Some of the hotels and casinos that supposedly had contracts were Motel 6, Hilton, Tropicana, MGM Grand, and Sheraton.

SEC Enforcement Director Highlights Agency’s Efforts To Eliminate Fraud Targeting Senior Investors

Published on: November 20, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission says that it has brought about over 45 enforcement actions involving scams targeting senior investors in the past two years. At the ALI-ABA Life Insurance Company Products Conference earlier this month, SEC Enforcement Director Linda Thomsen talked about the agency’s efforts to fight fraud against the elderly. She expressed concern over the fact that there are so many investment schemes out there focused on defrauding the elderly.

Thomsen said that the SEC has targeted a number of cases involving supervisory deficiencies. In one case, a Georgia broker convinced the Fulton County Sheriff’s Office that it was investing with a MetLife affiliate, when, in fact, the affiliate was actually affiliated to the broker.

Thomsen says MetLife knew their broker had compliance issues yet failed to supervise him properly and let him work in a “detached location.” The broker also convinced the sheriff’s office that an investment was permissible when it was not.

SEC and FINRA Say “Free Lunch” Seminars are Investment Scams Targeting Seniors

Published on: September 16, 2007 | by Shepherd Smith Edwards & Kantas, LLP

FINRA, SEC, and state regulators are saying that the “free lunch” investment seminars for senior citizens are actually high-pressure sales pitches, involving fraud and misleading claims about financial products that are not suitable for its elderly audience. A report of these findings will be issued to the public this week.

Alabama, California, North Carolina, Florida, Texas, Arizona and South Carolina are the U.S. states with the largest numbers of retirees. All seven states were included in the probe. The investigation took place from April 2006 to 2007 and concentrated on 110 investment firms and branch offices that held “free lunch” seminars for seniors.

The report blames investment firms for failing to properly supervise the employees that conducted the senior seminars.