Twin brothers accused of defrauding 50 clients for $5 million

Five months after the SEC charged twin brothers who are financial advisors with fraud, they're facing a criminal case that could put them behind bars for 20 years if convicted.

Adam S. Kaplan and Daniel E. Kaplan defrauded at least 50 clients for $5 million by overbilling advisory accounts, steering money from the customers' bank holdings and convincing them to invest in phony products, according to a 16-count indictment unsealed July 25 in the federal court of Central Islip, New York, and the Securities and Exchange Commission's March case. The 34-year-old residents of Great Neck used clients' money for personal expenses, fraudulent payments to other victims and purchases from an unidentified "luxury goods boutique" in Miami, investigators said, noting that some of the victims are older adults and people with disabilities.

The timing of an SEC civil filing and a separate criminal case revolve around the lead prosecuting attorney, who has only "one opportunity" to develop "an effective case theory that can be efficiently communicated to individuals with little background in financial misconduct," according to regulatory expert Louis Straney of Arbitration Insight. In other cases, federal criminal prosecutors, the SEC and other regulators filed respective charges on the same day. 

In an email, Straney said fraudsters typically use many different methods on victims. 

"Often you see a carefully deliberate process of victim grooming," Straney said. "The fraudster tests the water, even investing personal seed capital in gaining confidence, all in preparation for a cataclysmic result. They can spend months or years before they are confident that they will go undetected."

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The lawyers listed as representing the Kaplan brothers didn't respond to an email seeking comment. The twins' attorneys and federal prosecutors filed a "waiver of speedy trial" document on the day of their arrest last month noting their "engagement in continuing plea negotiations," court records show. Another lawyer representing the Kaplans in the SEC matter told Financial Planning earlier this year that the SEC charges would be "found to be without merit" after a "vigorous defense" against the case.

Representatives for the Chicago-based registered investment advisory firm that employed the Kaplans for most of the time span covered by the case, IHT Wealth Management, didn't respond to an email seeking comment on the allegations. IHT fired both brothers in July 2021 after a customer "placed a formal complaint with the SEC that his advisor fees were in the 2.5%-3% range with a signed agreement stating fees should be 1%," according to a disclosure on the Kaplans' registration files with the regulator.

While advisors' tips to authorities are helping to cut down on elder fraud through model legislation designed by state regulators and enshrined into law in 36 jurisdictions, a continuing stream of cases displays the prevalence of financial abuse targeting vulnerable groups like older adults. Victims aged 60 or older lose tens of billions of dollars annually to elder financial abuse, with most of the losses coming at the hands of people they know, a recent AARP study found.

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Between May 2018 and November 2022, the brothers and their clients usually agreed to a fee of 1% or less orally, but then they instructed the customers to sign written advisory agreements with the expense line blank, according to investigators. Then they would insert rates of 2% or more, the indictment said. They also obtained clients' bank information for the purported reason of collecting advisory fees that way, only to rack up about $4.5 million for themselves, the charging document stated. The purchases they made with clients' money included designer handbags, watches and a $30,000 charge to a "matchmaking service," the SEC said.

The criminal case charges the brothers with wire fraud, investment advisor fraud, money laundering and conspiracy to commit wire fraud — a rap that could amount to two decades in federal prison. Prosecutors are seeking forfeiture of any assets that were part of the alleged scheme as well.  

"The Kaplans engaged in years-long schemes violating the trust that their clients, some of them elderly and vulnerable, had placed in them to manage their money safely and honestly," Breon Peace, the U.S. Attorney for the Eastern District of New York, said in a statement. "The defendants lined their pockets at the victims' expense, but with their lies and frauds exposed, they will be held to account for their conduct."