In a counterstrike,
Kraus accuses all three firms of not doing enough to protect her from her son, Brett Thomas Graham, who was barred from the industry by the Securities and Exchange Commission for his part in an elaborate scheme
Instead, though, they allowed him to open new accounts in his mother's name and move money out of existing accounts over the course of four years, according to the claim. In the end, Kraus lost roughly $8.4 million.
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The suit argues that the accounts at the heart of its dispute with Kraus were held at
The suit seeks a declaratory judgment that Kraus's claims against
Kraus's lawyer, Jenice Malecki of New York-based Malecki Law, said she thinks her client could successfully press her claims in any forum. FINRA arbitration, she said, has the advantages of offering relatively quick resolutions and a chance to bring all the respondent parties together in one place.
"In our opinion, JP Morgan Securities is just trying to slow down a large and powerful expedited case for an elderly woman in distress and left penniless because of what appears to be their serious and systematic supervisory failures around Know Your Customer, (anti-money laundering,) Suspicious Transaction and Senior Financial Exploitation," Malecki said in an email. "It is our position that
Elder fraud is a
Kraus's claims before FINRA paint a picture of an elderly widow who was struggling with memory loss and fell prey to a close relative's greed. Kraus, according to the filing, secured her retirement nest egg through the sale of a townhouse on New York's Upper East Side. She was able to get nearly $9 million for a property she and her now-deceased husband had bought more than four decades earlier for $132,000.
About $8.3 million from the sale went into an account at
From 2018 to the end of 2020, Graham moved more than $2.5 million out, often by rerouting money back through
"Mr. Graham used his mother's money to circle the globe with his girlfriend, withdrawing hundreds of thousands of dollars at a time — a clear red flag — which the financial institutions knew, but the family (other than Mr. Graham) did not," according to the FINRA claim.
For part of the time when the initial $2.5 million was being moved out of Kraus's accounts, Graham was a resident of Florida, which has laws requiring authorities to be notified any time financial institutions see signs of elder fraud. The frequent money withdrawals and Graham's tainted regulatory past should both have been red flags triggering that duty, according to the claim. But neither Schwab, Francis Financial nor
"The accounts were opened on insufficient information and without proper due diligence; the accounts were not maintained as high risk accounts — but should have been given Ms. Kraus' age and Mr. Graham's status as a barred individual," according Kraus's claim.
Kraus's FINRA claim also faults the firms for not reaching out to a relative other than Graham to learn if anything was amiss. The filing notes that FINRA rules allow managers to reach out to "trusted contact persons" who can intervene if fraud appears to be occurring.
Yet, according to the FINRA claim, "Not a single financial professional or firm attempted to contact a trusted contact person ("TCP") other than Mr. Graham, nor any local authorities."
Graham was later able to obtain power of attorney for Kraus's Schwab accounts and moved out an additional $5.9 million, according to the filing. Her family discovered the scheme only after she was forced to leave the assisted-living home where she had been staying after Graham failed to make monthly payments.
Bill Singer, a securities lawyer and retired author of the
"If the thing you're asking about is allowing an individual barred from Wall Street to have power of attorney for his elderly mother, at a minimum I would have asked to reach out to another son or a daughter to find out what's going on," Singer said.
A spokesperson for Schwab said: "We empathize with Ms. Kraus's situation. But Schwab did nothing wrong here. The simple and tragic fact is that with her family's support, Ms. Kraus chose to entrust her son with a power of attorney to manage her financial affairs. And instead, he abused her trust."
Stacy Francis, the president and CEO of Francis Financial, said in an email, "We believe that the allegations are without merit and intend to vigorously defend ourselves."
Kraus's FINRA claim states that her will had originally included Brett Graham, along with her other two children. But those inheritance plans were later revised and his name was removed.
The filing says Graham has not held a regular job since being booted from the industry and has instead held himself out as a "private investor." Besides barring him from acting as a securities broker, Graham's settlement with the SEC in 2015 required him to pay $118,284 in disgorgement, $9,449 in pre-judgment interest and a civil penalty of $200,000. His firm, VCAP Securities, agreed to pay $1,064,555 in disgorgement and $85,044 in prejudgment interest.
Graham, who neither admitted to nor denied the charges, later attempted to rejoin the industry
"The Kraus/Graham family has filed numerous criminal and state protective actions against their son/sibling Mr. Graham, apparently now unable to pay his own rent or bills," according to the filing. "Allegedly he has threatened leaving the country (to the south of France) and/or bankruptcy."
