When Stockbroker Arbitration and Financial Elder Abuse Collide

Beverly Hills, CAInvestment News reported on 1/4/10 that there are many claims of financial elder abuse in stockbroker fraud arbitrations, but that the Financial Industry Regulatory Authority (FINRA) rarely cites the abuse when handing out awards. Recently, however, FINRA granted two awards to senior citizens who claimed to have been defrauded by brokers.

One award went to a 95-year-old investor who accused StockCross Financial Services Inc. and two of its brokers of misconduct and self-dealing. According to the arbitration, which was filed in March 2009, the brokers recommended unsuitable and risky investments and put the elder's home at risk. They then allegedly dropped him as a client after bilking him of all his assets, including his cash reserves, insurance money and home equity.

Because the arbitration was filed in California, the plaintiff, David Wolfson, was entitled to treble damages. Wolfson won a total of $1.6 million, including $320,000 in compensatory damages, $960,000 in damages for elder abuse, $234,000 in legal fees and an additional $83,000 in other fees. StockCross was also ordered to pay $10,000 for not following discovery orders.

StockCross has said that it will fight the decision and will file a motion to vacate. However, FINRA awards are difficult to overturn.

Earlier in 2009, FINRA announced that it was permanently barring a former New York broker from the securities industry for defrauding a senior citizen out of more than $500,000. The 90-year-old investor died before his daughter brought the broker's activities to FINRA's attention.

According to FINRA, the customer invested approximately $500,000 between 2004 and 2006 in a speculative, development-stage company that did not have publicly available financial information. The financial advisor knew this information, but recommended the company to his client anyhow. Furthermore, FINRA found that the broker sold those securities without the knowledge of the two brokerage firms with which he was registered.

The client reportedly paid between $3 and $4 for stock in the company, although there was no reasonable grounds for valuing the stock at those prices. The broker made approximately $76,000 in commissions for the sale of those stocks.

"[The broker] was found to have effected unsuitable investments for the customer given the customer's age and financial condition," FINRA wrote.

The stockbroker neither denied nor confirmed any wrongdoing in the situation.