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Financial Exploitation of the Elderly Remains a Persistent Problem in Florida

By Guy M. Burns, Scott C. Ilgenfritz & Jonathan S. Coleman | Categories: Articles, Corporate and Securities Law, LitigationPrint PDF March 2021

Several years ago, we obtained an award in excess of $32 million in a Financial Industry Regulatory Authority (“FINRA”) arbitration against the investment firm of Morgan Stanley and one of Morgan Stanley’s top producing wealth managers.  Our client was the estate of a wealthy elderly individual who suffered from dementia, Alzheimer’s, and other age-related infirmities.  Morgan Stanley and its advisor were found to have committed elder exploitation in violation of their fiduciary responsibilities under Florida’s Adult Protective Services Act, codified in Chapter 415 of the Florida Statutes.

We have now successfully concluded another significant elder exploitation case, this time against J.P. Morgan Securities and two financial advisors who also happened to be the grandchildren of our elderly exploited client.  Taking financial advantage of the elderly is, in fact, far too common, due in part to the fact that the aging “greatest generation” and their baby-boomer children are in the process of transferring trillions of dollars through their estates.  In 1997, this amount was expected to be between $12 to $30.  A red-hot stock market has caused those 2017 estimates to be revised significantly upwards.  Forbes continues to use a fairly conservative $30 trillion figure, but other sources have estimated that “as much as $68 trillion will move between generations in the next 25 years.”  This massive money transfer is proving irresistible to the unscrupulous.

Florida’s legislature has attempted to protect vulnerable adults from exploitation and abuse with the Adult Protective Services Act. Under the Act, abuse and exploitation constitute different issues.  While “abuse” is limited to acts or threats relating to “physical, mental or emotional health”, “exploitation” does not require physical or emotional harm, and it occurs whenever a person in a position of trust and confidence improperly obtains or uses a vulnerable adult’s funds, assets or property.  These improper actions can consist of fraud, misrepresentation, stealing, embezzlement, false pretenses, or any other conduct “similar in nature.” 

The Act’s definition of “fiduciary” is also quite broad, and a fiduciary need not necessarily be a professional such as a guardian or trustee.  A fiduciary relationship can be informal and will be found to exist in any situation “based upon the trust and confidence of the vulnerable adult in the caregiver, relative, household member, or other person entrusted with the use or management of the property or assets of the vulnerable adult.”  This definition can include stockbroker, financial advisor, attorneys, accountants, bookkeepers or others.

A “vulnerable adult” under the Act may be any person who is impaired due to “the infirmities of aging.”  The Act anticipates the filing of civil actions for exploitation, which can lead to awards of actual damages, punitive damages, attorney’s fees, and the costs of the action.

Financial exploitation of the elderly, sadly, can involve family members, and one very recent example is a case we handled involving members of the very wealthy Schottenstein family.  The case has received national news coverage.

The Schottensteins are based in Columbus, Ohio, and were once on the Forbes list of the 100 wealthiest families in the United States.  They are well known for funding The Ohio State’s basketball arena, the Jerome Schottenstein Center (affectionately nicknamed “The Schott”).  The family’s significant fortune is primarily derived from retail operations, includes fashion, grocery, and malls:  the Schottensteins were also founders of the Big Lots chain, and either directly or indirectly own the brands DWS and American Eagle, as well as large stakes in the Albertson’s and Safeway grocery store chains, which merged in 2015.

The matriarch of one family branch, Beverley, resides in Bal Harbour, Florida and two of her grandsons, brothers Evan A. Schottenstein and Avi Elliot Schottenstein, acted as her financial advisors through J. P. Morgan Securities.  Evan and Avi embarked on an audacious exploitation of their grandmother, which included multiple forgeries of her signature and a “dummy” e-mail account in her name, which the boys used to pretend to send prospectuses and other documents relating to for risky deals their grandmother. 

The scheme was uncovered by a granddaughter who became aware of numerous suspicious transactions in Beverley’s J. P. Morgan account and an investigation ensued.  We commenced a FINRA arbitration on July 24, 2019 on behalf of Beverley, against her grandsons and J. P. Morgan.  Since J. P. Morgan’s account documents with Beverley contained a binding arbitration clause, Mrs. Schottenstein was unable to proceed in court, but she was able to assert violations of Florida’s Act.

In arbitration, Beverley Schottenstein asserted that J. P. Morgan and her grandsons engaged in constructive fraud/abuse of fiduciary duty; that they had made fraudulent misrepresentations and omissions, and that they had committed elder exploitation in violation of Chapter 415 Fla. Stat.  The respondents denied all allegations, aggressively defended every aspect of the arbitration, and at the conclusion of proceedings, and unsuccessfully moved to dismiss the case.  The actual arbitration was conducted via Zoom and unfolded over 22 business days:  ten in October 2020, five in November, four in December, and it finally wrapped up over three days in late January, 2021. 

Approximately a month after the FINRA arbitration proceedings concluded, the three-member panel on February 5, 2021 issued its Final Award.  J. P. Morgan, Evan Schottenstein, and Avi Schottenstein were all found liable on the counts of constructive fraud, abuse of fiduciary duty, and fraudulent misrepresentations and omissions.  J.P. Morgan and Evan Schottenstein were found further liable for “elder abuse” (exploitation) in violation of Fla. Stat. Chap. 415.  The award consisted of a total of $19,000,000 in damages, plus an award of attorney’s fees and costs. 

 The fallout of this dispute, while it restored some of the losses incurred by Beverley Schottenstein, was not necessarily a happy one.  The family has likely been irreparably damaged; the reputation of J. P. Morgan has been tarnished; and the careers of Evan and Avi Schottenstein in the brokerage industry have essentially been destroyed.

The cautionary tale of our most recent exploitation case holds multiple lessons.  First and foremost, our elderly and aging population remains at increasing risk from financial predators.  Had it not been for the observations and actions of an alert Schottenstein family member, grievous wrongdoing would likely have escaped unnoticed.  Fortunately, remedies were available in the form of Florida’s elder exploitation laws and common law theories.  From the defense and industry side, absolute diligence and integrity are required to avoid similar costly liability as well as the risk of damage to reputations.

If you believe that an elderly family member, friend or neighbor has been or is being exploited, call an experienced attorney to discuss the matter.  As is frequently stated, “if you see something, say something.”

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