A lawyer representing an elderly client defrauded of much of his life savings is hoping to use fines to remind wealth managers of their obligation to help prevent scams.
But Sam Edwards, a partner at Shepherd Smith Edwards & Kantas in Houston, knows the roughly $100,000 FINRA arbitration award he secured against TDAmeritrade on behalf of an elderly client last week is not nearly enough to send the needed message. Edwards said he was hired by Willard Holgate, an 80-year-old man living in Austin, Texas, after scammers drained $460,00 from two individual retirement accounts and a brokerage account Holgate had had with TDAmeritrade before its
Edwards, a former president of the Public Investors Advocate Bar Association, said the fraud was carried out in a way that's become all too familiar to lawyers in his line of work. In this case, scammers living in Hong Kong hacked into Holgate's computer and gained access to his TDAmeritrade accounts.
Then,
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By the time it was all done, Holgate was left with three empty accounts and a
"One answer is that financial firms aren't going to do anything unless they are forced to do it," Edwards said. "It's going to take them losing a bunch of cases and being held liable, because the truth of the matter is what they do now is very little."
Edwards said Holgate was scammed in September 2022, roughly two years after TDAmeritrade was acquired by Charles Schwab but before the two firms were fully merged. A spokesperson for Schwab said, "While we disagree with the panel's decision, we sympathize with Mr. Holgate and hope that the criminals who defrauded him are held accountable. We continue to urge our clients to safeguard their personal information and be cautious with any financial transactions."
Holgate's claim alleged violations of the federal Consumer Protection and Deceptive Trade Practices Act, breaches of fiduciary duty, gross negligence and other misdeeds and sought between $100,000 and $500,000, plus interest and costs. In the end, he was awarded $97,200 in compensatory damages, plus interest, and a little over $9,000 in cost and fee reimbursements by a Financial Industry Regulatory Authority panel. As happens in most FINRA arbitration cases, the panel that ruled in this case didn't provide reasons for its decision.
Elder fraud plague
Cases of elder fraud have long been a plague in the financial services industry. Schwab itself is now fighting
The FBI's internet crime center reported in April that people 60 and older reported $3.4 billion in losses to fraud in 2023, a figure up 14% from the previous year. But the AARP contends that underreporting means the figure is likely much higher — putting the total stolen from people 60 and over every year
Edwards said he gets at least one call a week from an elderly person alleging fraud. Sometimes, it's as many as two or three.
He of course can't take them all on as clients. But until firms are made to suffer legal consequences for not doing more to protect their customers, most will continue doing the bare minimum to stay compliant, Edwards said.
In Holgate's case, the warning signs were abundant, Edwards said. He, for instance, had held his retirement accounts for years with TDAmeritrade without taking money out.
"So then you have to ask, 'Why are you liquidating those IRAs that you've had for 10 or 15 years and taking the huge tax hit that happens when you do that?'" Edwards said.
Edwards also said red flags show up in recordings that Ameritrade has of five conversations Holgate had with its representatives. In at least some of those, Edwards said, Holgate shows obvious confusion about wire transfers the scammers had initiated on his behalf.
"If they are vague, that's a pretty good sign they have been told to say something," Edwards said.
Need to preserve communications
Robert Cruz, the vice president of information governance for the
SMARSH is one of many companies offering products to track and record these conversations.
"I think the focus from the regulators is on making sure that these systems work properly, and that you have the appropriate oversight and that you are doing all you could do as a provider to manage vulnerabilities," Cruz said. "And it's for very clear reasons."
Sending a message
Edwards said cases like this one seem much more likely to happen at firms that deal with customers primarily through online portals. When clients form a relationship with a single financial advisor or team of advisors, they tend to benefit from having those additional eyes looking out for their best interests.
That's not to say, Edwards said, that there is any type of firm that's immune to fraud — or that couldn't be doing more to help prevent it.
"This one award doesn't change anything," he said. "We are going to need a whole bunch of awards, and bad press related to it. We need to tell firms: You've got to do a better job of trying to solve this problem."
