Elderly Widow “Affinity” Fraud Victim – Punitive Damages

Silver Law Group represented a retired widow with limited investment knowledge who was targeted by a financial advisor with a significant regulatory disciplinary history and multiple prior customer complaints. The financial advisor befriended vulnerable and elderly widow to gain her trust and confidence. The Florida Department of Financial Services revoked the financial advisor’s insurance license accusing him of “religious affinity” fraud. According to regulators, during the course of the financial advisor’s career, he had multiple customer complaints that warranted a heightened supervision of his business activities which could have prevented his fraudulent acts.

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities and the elderly. These scams exploit the trust and friendship that exist in groups of people who have something in common. Many affinity scams involve “ Ponzi schemes ”, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Ponzi schemes depend on an unending supply of new investors – when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone. The Securities Exchange Commission issued an Investor Bulletin: Affinity Fraud which explains the targeting of unsophisticated investors. In this instance, the financial advisor recommended the sale of existing investments to be invested with a hedge fund manager which was a part of the fraud the investors’ funds were ultimately used by the financial advisor for personal use.

Alleged Misconduct

The Financial Industry Regulatory Authority (FINRA) arbitration claim alleged the following violations:

• Unsuitable investment advice;
• Breach of fiduciary duty;
• Exploitation of an elderly person, Florida Statute § 415 violation ( elder financial fraud ) warrants the award of punitive damages and attorneys’ fees;
• “Variable annuity switching” in order to generate excessive commissions;
• “Selling away” private securities transactions; and
• Failure to supervise, required heightened supervision for financial advisor with disciplinary history.

Arbitration Panel Decision

The FINRA arbitration panel awarded to Claimant compensatory damages of $280,403 and punitive damages in the amount of $841,211, for a total recovery of over $1.1 million. The award received significant press including a story in the Daily Business Review.

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