Articles Posted in Problem Brokers

Last month we learned that Tim Duncan’s financial adviser was sentenced by a federal court to four years in prison for defrauding the NBA legend of $7.5 million.  Duncan earned over $220 million during his playing career, so he is by no means financially ruined, but there are some good lessons to learn about investing and placing too much trust in the person who manages your money.

Tim Duncan is an accomplished, 15-time NBA All-Star and future Hall of Famer.  He retired in July 2016 after playing nineteen seasons of professional basketball with the San Antonio Spurs.  In today’s age of free agency and mega-million-dollar commercial endorsements, it is a rarity for a player to play his entire career with a single franchise.  As one of the greatest to ever play the game, Duncan could have sought greener pastures and taken his talents to the highest bidder in any city of his choosing.  Instead, he was noted for having taken yearly pay cuts to stay in San Antonio to allow the Spurs to remain under the league salary cap while paying for talent at other positions.  Duncan was generally known for his loyalty and being the consummate teammate and role model for fans and younger players.  His loyalty on the court perhaps says a lot about how he conducted himself off the court, where he showed similar trust and loyalty to the people in his daily life, including his financial adviser.

Last month, Duncan’s financial adviser, Charles A. Banks, IV, made headlines when a federal court in Texas issued a judgment against Banks, convicting him of wire fraud, and sentencing him to 48 months in prison followed by three years of supervised release.  The court also ordered Banks to pay $7.5 million in restitution.

Financial exploitation of the elderly by a financial advisor can take many shapes and forms, and it is indeed possible to recover one’s financial losses from the broker or financial institution who carried out and supervised the misconduct.  Wrongdoing by a financial professional can be difficult to expose because it often arises out of relationships built on trust, and can go undetected for many years by the affected senior and family members.

Some types of broker misconduct are easier to identify than others.  Cases of outright fraud, for instance, could include the broker forging an elderly customer’s signature, falsely representing the worth or activity in an account, omitting the risks of a particular investment, recommending and selling unnecessary investment products (e.g., certain annuities), or trading excessively in a customer account solely to generate commissions (otherwise known as “churning”).  Regardless of motive or intent, an investor’s financial losses from the misconduct can be no less catastrophic.  If anything, this should point to the incidence rate of financial abuse amongst the elderly to be more prevalent than many people realize.  Indeed, research has shown that American senior citizens lose over $36 billion per year from financial exploitation.  That number is only expected to rise with increasing life expectancy and the expanding demographic of senior citizens within the United States.

Financial elder abuse is also greatly underreported.  According to the National Adult Protective Services Association, only 1 in 44 cases of financial abuse is reported.  The National Center for Elder Abuse points to studies that have identified feelings of shame as being one reason for the underreporting, in part related to the embarrassment of having fallen victim to financial fraud, but also to the embarrassment of having to disclose that one is suffering from age-related memory loss or cognitive decline.  On this latter point, memory impairment of an elderly investor only adds to the underreporting of broker misconduct.