In yet another case of fraud targeting senior investors, the Securities and Exchange Commission (“SEC“) has charged William Neil “Doc” Gallagher, a Texas-based man touting himself as “the Money Doctor,” in an emergency action to halt a sizable Ponzi scheme targeting the retirement funds of elderly investors.
Emotional Manipulation of Aging Investors
To promote his fraudulent scheme, Gallagher made appearances on three Dallas-area radio stations, falsely claiming to be a licensed investment adviser.
Gallagher leveraged numerous religious references during his radio appearances to gain a foothold among retired Christian investors, allowing him to raise $19.6 million or more from approximately 60 senior citizens between December 2014 and January 2019.
Fraudulent Claims of “Risk-Free” Returns
To further convince potential investors, Gallagher guaranteed risk-free annual returns of 5% to 8% on income-generating investments in five categories.
Except for one $75,000 annuity purchase, Gallagher purchased no assets to generate the promised returns, instead using investor funds for unrelated personal and company expenses, and for Ponzi-like payments to investors.
Gallagher provided investors phony account statements showing false account balances to perpetuate the scheme.
A Responsibility to Protect Aging investors
The number of schemes targeting vulnerable populations is alarming, with this case representing one more instance in a stream of fraudulent activity against aging investors.
As a result, regulatory bodies have required firms to adopt effective policies and procedures to protect senior investors, which is one of the priorities on the Commission’s SEC exam priority list for 2019. As a fiduciary, firms must be aware of and properly care for seniors’ unique investment needs.
Know the Signs of Diminished Capacity
The possibility of a declining capacity to make effective decisions is a serious concern for senior investors, with signs and symptoms that render them increasingly vulnerable, such as:
- Difficulties with thinking, memory, and judgement
- Disorientation (such as not knowing the date)
- Difficulty following a conversation
- Difficulty making decisions or performing tasks (such as paying bills)
- Significant mood changes and suspiciousness
- Loss of initiative
- Restlessness and wandering
If a client is showing signs of diminished capacity, firms should have a plan in place to navigate this minefield of potential missteps and problems.
Know How and Where to Report Suspected Elder Abuse
Financial exploitation is one of the saddest and most common forms of elder abuse. As one ages, often times vulnerability increases, as seniors often rely upon family members, care givers and other trusted contacts to tend to the elder’s needs. Sadly, it these trusted individuals often are the abusers, so it is important to be aware of the common signs of elder abuse and exploitation.
Those warning signs include:
- Neglect or other indications of physical or emotional abuse
- Blocked access to belongings or assets
- Previously uninvolved relative, caregiver, or friend interjecting themselves into financial affairs
- Isolation from family and professional advisors
- Unexplained change in professional advisors (such as CPA, attorney, or financial advisor)
- Unexplained asset transfers or withdrawals
If abuse is detected, firms should be prepared to reach out to local Adult Protective Services, who will investigate reports and intervene, as necessary, to protect the victim.
Consider also reporting any signs of elderly abuse to law enforcement, which could be a requirement in your jurisdiction.
Working With Aging Investors: Have a Plan in Place
It’s important that firms consider their internal controls for how the firm and its associated persons help to protect such senior investors. Common controls include: adding contract provisions that discuss the steps that the firm will take if they suspect financial exploitation or diminished capacity; training of financial professionals to learn the signs of diminished capacity and financial exploitation and what to do if they suspect those conditions; identification of an internal “go-to” person to escalate senior client issues to; and robust policies and procedures that set forth the steps the firm takes to protect its senior investors.
JLG recognizes that protecting aging clients is a complex issue. JLG’s Managing Partner, Michelle Jacko, has authored financial industry articles on and spoken at more than a dozen national compliance conferences on steps firms should consider to protect aging clients. For more information on how we can help you to protect aging investors, please contact Jacko Law Group, PC.