by Richard Eisenberg – May 28, 2021
‘Friends Talk Money’ podcast hosts share cautionary advice based on the Beverley Schottenstein story.
The Beverley Schottenstein $80 million elder financial fraud story is one you won’t believe. But, as my “Friends Talk Money” podcast co-hosts and I explained in our two latest episodes, it’s one you need to know about to protect your parents from becoming victims themselves.
Schottenstein, 94, recently won $19 million in her arbitration case against J.P. Morgan Securities and her grandsons Avi and Evan Schottenstein, her brokers there for five years, ostensibly managing her millions. (Schottenstein is matriarch of the family’s Columbus, Ohio retail dynasty, whose stores included Value City and American Eagle Outfitters AEO -1.5%.)
Problem is, the grandsons wouldn’t tell their grandmother what stocks they were buying and selling. They made hundreds of transactions this way, Schottenstein said.
“I would call and say, ‘Now, what’s going on, boys? I want to know.'” Schottenstein, who lives in Florida, told “Friends Talk Money” co-host Pam Krueger. (You can listen to the whole episode wherever you get podcasts or at the end of this article.)
But, Schottenstein said, her grandsons told her only that they were doing well for her.
When the Brokerage Statements Stopped Coming
After Schottenstein insisted they check with her before trading in her account, her brokerage statements stopped coming. When she complained about that to her grandsons and got no satisfaction, Schottenstein got J.P. Morgan Chase CEO Jamie Dimon on the phone.
“I was very upset talking to Jamie,” Schottenstein recalled. “He said: ‘I’m going to let you talk to my Number One Man.” She then spoke to that man, told him her story and started crying. “And he said: ‘I’m going to take care of it immediately. Don’t worry. Don’t worry.’ I never heard back from any of them.”
Ultimately, Schottenstein went to arbitration through FINRA (Financial Industry Regulatory Authority) because retail investors can’t take their brokers to court.
“J.P. Morgan made millions of dollars just in commissions and those commissions were also split with Evan and Avi,” Schottenstein’s granddaughter Cathy, a first cousin of Avi and Evan Schottenstein, said on the podcast. She’s writing a book about the case and her grandmother, who she calls Nanny (“Twisted: Conflict, Madness and the Redemptive Power of a Granddaughter’s Love”).
Schottenstein’s granddaughter said that at one point, J.P. Morgan Securities froze her grandmother out of her own account and that the grandsons wrongly said she had dementia.
“Friends Talk Money” co-host Terry Savage said that after Schottenstein persevered and won the case in February 2021, J.P. Morgan Chase issued a statement saying that “the brokers involved are no longer with our firm” and “do not reflect the values of our firm.” The grandsons’ attorney said the $19 million award was inconsistent with the evidence presented at the FINRA hearing.
FINRA permanently banned Evan Schottenstein in April 2021. The Schottenstein brothers have asked a court to nullify the arbitration panel’s ruling.
The Lousy Odds of Winning in Arbitration
Most investors going through FINRA arbitration — where decisions are final — don’t win a dime. When I checked the FINRA site, I learned that customers were only awarded damages 32% of the time in 2020, and that’s down from 45% in 2019.
Even if you do win, Louis Straney, managing partner at the Arbitration Insight firm in Lamy, N. M., told “Friends Talk Money,” you’re “seldom fully made whole, because of attorney’s fees and litigation costs and other expenses.” The average filing fee with FINRA is about $1,200; the larger the case, the higher the fees, according to Investorlawyers.com.
The new Securities and Exchange Commission Chair Gary Gensler recently told Congress he favored legislation known as the Investor Choice Act that would let investors take brokers to court rather than arbitration.
Schottenstein’s case and the FINRA arbitration realities show why it’s so important for investors to watch their brokers like a hawk. And if they spot irregularities — such as churning of their accounts through excessive trading — they need to report this to the firm and to financial authorities.
“It’s important that you have someone on your side to speak up,” said Savage. And, she advised, put your accusations about unauthorized trading in writing.
First, send them to the brokerage firm’s branch manager. If you get no results, Savage said, take it up the chain of command.
“Don’t be shy about reaching out to the state securities administrator,” said Krueger. “It’s really important that people can recognize the red flags and follow in Beverley’s footsteps and speak up.”
Savage noted that the FINRA site’s BrokerCheck area can also tell you whether there have been regulatory actions, arbitration cases and complaints against a broker.
Elder Financial Abuse: A $3 Billion Problem
While the dollars in Schottenstein’s case may be astronomical, elder financial abuse is a serious problem for many mere older mortals on the planet. As Savage noted: “It’s such a sad story. And unfortunately, it’s not all that uncommon.”
Estimates of elder financial fraud and abuse vary, but the Federal Bureau of Investigation said older Americans suffered $3 billion in losses in 2019. The average loss per case: about $18,000.
“About ninety percent of perpetrators of elder financial abuse are actually the children of the spouses or the caretakers,” said Savage. But, I noted, many of these cases aren’t reported because the victims are embarrassed or humiliated or they don’t want to get a loved one in trouble or cause a family rift.
Schottenstein told “Friends Talk Money” that the whole financial exploitation experience was very upsetting for her. “I started losing my hair,” she said. “Thank goodness it’s coming back to me.”