One day in late April, an elderly woman handed over nearly $80,000 worth of gold bars outside her retirement home to a "runner" she believed was tied to government agents helping her avoid fraud.
The person who took the delivery was, of course, a scammer.
The suit, filed in federal court in Los Angeles on Friday, accuses Schwab of standing idly by as scammers posing as government agents defrauded Rootenberg of just over $278,000 between February and April this year. Throughout it all, according to the complaint, Rootenberg's daughter beseeched Schwab to lock the main account used for the fraudulent transactions.
Schwab would freeze the account temporarily, but later — on five separate occasions — turn around and unblock it, the suit says. Schwab, according to Rootenberg's lawyers, said it would consent to a permanent lock only if Rootenberg sounded the alarm herself. Yet, the complaint notes, Schwab acknowledges on its own website that, "[v]ictims may be reluctant to tell someone what is happening due to embarrassment or fear of straining a relationship."
"Without Schwab's decision to unblock Ms. Rootenberg's account and authorize each of these transactions, she would not have lost over a quarter of a million dollars," the suit alleges. "Schwab did not adequately investigate potential fraudulent transactions each of the five times it re-opened Ms. Rootenberg's account. Schwab materially contributed to the fraudulent scheme with its negligence."
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A Schwab spokesperson said, "We sympathize with Ms. Rootenberg, whose exploitation at the hands of unscrupulous criminals serves as a stark example of the devastating impact of imposter fraud."
The spokesperson added, "We consistently advise our clients to stay cautious, remain skeptical of unexpected or urgent requests, and verify any details directly with us before acting."
Rootenberg's lawyers did not respond to requests for comment.
Elder fraud cases rising
The case is just the latest to draw attention to the
But fraud victims' frequent reluctance to report scams — often stemming from embarrassment — means the total is likely much higher. The AARP estimated last year that
Unfortunate tales abound.
As in Rootenberg's case, the fraud was carried out by scammers posing as government agents. Also as with Rootenberg, family members were left wondering why the sophisticated financial institutions their relatives had placed their trust in hadn't stepped in to do more.
Lou Straney, a regulatory expert at
"The firm was in the best place to detect the fraud and put an immediate halt to this victimization," he said. "Based on the known fact pattern, it's impossible to imagine how the firm will justify its inaction."
How Rootenberg was scammed
Here, according to Rootenberg's lawyers, is how the scam unfolded. Early this year, Rootenberg began to notice inexplicable "clicking" noises when she was on her computer and came to believe she had been hacked.
She reported her suspicions to Schwab and other institutions where she held money, but no blocks were placed on her accounts. Scammers posing as government agents later reached out to her to say her identity had been stolen and that they could help protect her assets.
"She was told to sign an online document and give the scammers remote access to her computer while she logged onto her Schwab and other financial institution accounts," according to the suit. "Every day she would receive two calls asking her to log into her accounts and direct her money to different transactions, which were processed by Schwab. The scammers would monitor Ms. Rootenberg's activity and send her messages directing her what to say to financial institution representatives."
On Feb. 1, Rootenberg sold $17,000 worth of stocks and transferred tens of thousands more dollars among checking, living trust and designated beneficiary accounts held at Schwab. The transactions should have been immediately flagged as suspect, according to the complaint, because she previously had never moved more than $600 out of the living trust and never more than $10,000 for all of her accounts.
The next day, Schwab helped wire just over $132,281 out of the living trust — the main account used in the scam — to a gold bullion company. The transfer was allowed to take place even though a Schwab supervisor had previously noted the gold firm's connection to other scams, according to the complaint. The complaint alleges Schwab neither verified the transaction with Rootenberg or reached out to her daughter, Lesley Joelson, who was listed as a trusted contact to help prevent fraud with her mothers' accounts.
A week later, Schwab aided in another wire transfer, this one for just over $65,713 worth of gold. On this occasion, Schwab did reach out to Joelson, who asked the firm to lock her mother's account.
Joelson noted that her mother had remarked that she "was not allowed to tell anyone what was going on." The suit calls that statement a "hallmark sign of financial exploitation."
"Despite this instruction and knowledge, Schwab refused to lock the account," according to the suit. "The scam continued."
Tens of thousands began to come into Schwab from accounts Rootenberg held at other institutions like Capital One. The scammers, according to the suit, engaged in "bleeding her Capital One savings account dry and consolidating money to transfer out of Schwab."
A block was placed on Rootenberg's accounts for part of March but was removed on March 22. "Right away there was more activity," according to the suit.
An official in Schwab's senior and vulnerable investors investigations team noticed something was amiss and reached out to Joelson, who again urged the firm to lock her mother's account. Nothing was done, however, and the scammers meanwhile prepared to wire more than $130,000 out of Schwab. That transaction was later canceled after Rootenberg said "the investment opportunity went away."
Schwab eventually had Joelson added as a "limited trading authority" on her mother's accounts. That designation gave Joelson the ability to monitor her mother's money. In reality, according to the suit, "Adding the LTA was a ploy to appear to do something, however, it was not going to help stop Ms. Rootenberg from being scammed."
The money transfers continued, with Rootenberg eventually selling investments held at Fidelity and moving tens of thousands of dollars over to Schwab. On April 16, Schwab helped send a wire for more than $78,000 worth of gold bullion to a company called Neptune Global Bullion Exchange.
The scammers later had Rootenberg buy a video camera and asked her to use it to record herself unboxing the gold and repackaging it according to their instructions. She hand-delivered the bars to a runner outside her nursing home on April 22. Photo stills, taken from a security camera outside the home and displayed in the lawsuit, show her in the act of handing the gold over.
Schwab finally locked the account when a wire request came in from a "foreign unknown third party in Vietnam," according to the complaint.
FINRA rules to prevent elder abuse
The suit notes that the Financial Industry Regulatory Authority, the broker-dealer industry's self-imposed watchdog, has regulations specifically allowing firms to place holds on the accounts of clients who are 65 or older if they suspect fraud is taking place. FINRA also adopted a rule in 2017 requiring firms to designate "trusted contacts" — like Rootenberg's daughter — for elderly clients' accounts and giving those contacts legal immunity if they decide to delay transfers when they
By not doing more to protect Rootenberg, the lawsuit alleges, Schwab violated California's elder abuse and dependent adult civil protection act. The complaint also accuses the firm of breaching California's unfair competition law and seeks an injunction on seeking any outstanding debts from Rootenberg, as well as restitution and compensatory and punitive damages, among other things.
Judith Shaw, a former top security regulator in Maine and an elder justice advocate, said she thinks many firms believe they have fulfilled their duties to protect older clients when they temporarily lock their accounts and then possibly reach out to social workers at a local adult protective services division. They should instead be going a step further, she said, and have their internal fraud investigators try to learn what's going before lifting a freeze.
Ironically, Shaw said, the main reason why firms don't do those additional things is a fear of being sued. There are particular concerns, she said, about giving a third-party trusted contact too much control over another person's assets.
"But the purpose of having a third-party is not for them to be an agent for the account," Shaw said. "It's instead to say, 'Let's together and let's have a three-way conversation between someone at the firm and the third party and the client and try to gently lead her to the conclusion that something is going wrong and to help support her in her fear and anxiety."
— This article was updated with comments from Judith Shaw.
