The woman’s heir claimed that more should have been done to protect her
A panel at the Financial Industry Regulatory Authority (Finra) has found Morgan Stanley and a broker liable for letting an elderly client get taken by a now-convicted con man in a fraudulent home-security scheme.
In 2009 and 2010, California-based broker Steven Crawford tried several times to dissuade his elderly client from making unusual withdrawals to pay for a supposed home-security system, according to AdvisorHub.
Despite Crawford’s efforts, the woman liquidated US$300,000 from her mutual funds and paid the amount to now-convicted con man Adam Margaros, who at the time preyed on her paranoid delusions. Prior to the liquidations, her account had been worth US$400,000 in total.
The woman’s heir claimed that the firm and Crawford should have acted in loco parentis, saying that since Morgan Stanley offers its brokers guidance on working with the elderly in response to Finra regulatory notices proved that it understood elder abuse issues enough to know when intervention is necessary.
The regulator ruled in favour of the claimant, fining the firm and the broker US$396,623. One of the arbitrators issued a dissenting opinion, noting Crawford’s testimony that he “advised her to get a relative involved and/or go to the police.”
“In what appears to be a classic example of ‘no good deed goes unpunished,’ Claimant seeks to have Respondents held responsible as aiders and abettors of [the] crime of elder abuse and fraud,” said arbitrator Mark Priver. He pointed out that Crawford and his supervisors couldn’t contact relatives or authorities directly because of federal privacy laws.
“It is sheer speculation to conclude that any report Crawford may have made to management or legal would have stopped Margaros from bilking [the client] out of nearly US$300,000,” he said. The woman had already paid the fraudster US$295,000 within two months of Crawford’s warnings.
New regulatory amendments from Finra allow broker-dealers to breach privacy rules, notify relatives, and delay transactions in cases of elder abuse, but they are set to take effect next year, according to observers.
“Ultimately, it puts financial firms in an untenable position if they are supposed to be doctors, psychiatrists, and soothsayers,” said Jason Gottlieb, who works at New York-based law firm Morrison and Cohen. “Even the best financial firms with the most robust compliance programs … may run into problems here.”
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In 2009 and 2010, California-based broker Steven Crawford tried several times to dissuade his elderly client from making unusual withdrawals to pay for a supposed home-security system, according to AdvisorHub.
Despite Crawford’s efforts, the woman liquidated US$300,000 from her mutual funds and paid the amount to now-convicted con man Adam Margaros, who at the time preyed on her paranoid delusions. Prior to the liquidations, her account had been worth US$400,000 in total.
The woman’s heir claimed that the firm and Crawford should have acted in loco parentis, saying that since Morgan Stanley offers its brokers guidance on working with the elderly in response to Finra regulatory notices proved that it understood elder abuse issues enough to know when intervention is necessary.
The regulator ruled in favour of the claimant, fining the firm and the broker US$396,623. One of the arbitrators issued a dissenting opinion, noting Crawford’s testimony that he “advised her to get a relative involved and/or go to the police.”
“In what appears to be a classic example of ‘no good deed goes unpunished,’ Claimant seeks to have Respondents held responsible as aiders and abettors of [the] crime of elder abuse and fraud,” said arbitrator Mark Priver. He pointed out that Crawford and his supervisors couldn’t contact relatives or authorities directly because of federal privacy laws.
“It is sheer speculation to conclude that any report Crawford may have made to management or legal would have stopped Margaros from bilking [the client] out of nearly US$300,000,” he said. The woman had already paid the fraudster US$295,000 within two months of Crawford’s warnings.
New regulatory amendments from Finra allow broker-dealers to breach privacy rules, notify relatives, and delay transactions in cases of elder abuse, but they are set to take effect next year, according to observers.
“Ultimately, it puts financial firms in an untenable position if they are supposed to be doctors, psychiatrists, and soothsayers,” said Jason Gottlieb, who works at New York-based law firm Morrison and Cohen. “Even the best financial firms with the most robust compliance programs … may run into problems here.”
For more of Wealth Professional's latest industry news, click here.
Related stories:
Former Morgan Stanley broker charged with hiding losses
What protections are in place for at-risk senior investors?
