We hear it every day – seniors are financially exploited. At least 36 billion dollars annually is lost, and the funds are almost never recovered. However, we recently ran across a case where the perpetrator’s hubris and the name caught our interest. But the case was unusual for other reasons, the perpetrator was caught, and the losses were made whole.
On Sept. 29, 2022, the U.S. Securities and Exchange Commission (“SEC”) sued Bradley A. Goodbred in the Federal Court for the Northern District of Illinois, Eastern Division, for stealing from his investment advisory client, now 97. Goodbred was employed by LPL Financial Holdings, Inc.(“LPL”), a San Diego-based financial conglomerate founded in 1989 with over $1 trillion in Assets Under Management and some 17,500 financial professionals. LPL is America’s largest independent broker/dealer with offices across the country.
Goodbred was duly registered as both a registered representative (stockbroker) and an investment adviser representative. The SEC’s Complaint (the “Complaint”) alleges that Goodbred persuaded the Client to transfer $1.295 million to his investment company, purportedly to invest in Real Estate Investment Trusts on her behalf. The Complaint asserts that in fact, Goodbred took the money and used it for his personal expenses.
Goodbred had met the Client and her husband two decades earlier when they sought out a financial adviser to guide the Client in the event of her husband’s death. When the husband died, Goodbred positioned himself as a friend and confidant to the Client, who lived alone and whose children had predeceased her. Ultimately the Client appointed Goodbred as an investment adviser in her living trust and gave him a power of attorney.
The Client transferred $1.295 million to Goodbred’s private company, Northern Lights Properties, LLC (“NLP”), with the understanding that it would be invested in Real Estate Investment Trusts (REITs) on her behalf. Instead, Goodbred transferred most of the money into his personal bank account and used it to pay his taxes and credit card bills.
Fortunately, the Client had a revocable living trust and named a successor trustee (the “Successor Trustee”), who became concerned with the Client’s cognitive state. The Successor Trustee sought to obtain financial information from Goodbred and have the Client medically evaluated and hired a professional care manager. Fearing discovery, Goodbred terminated the care manager, quashed the request for a medical examination, and refused to turn over the Client’s bank account statements. The Successor Trustee complained to LPL. LPL finally, after eight years of unexamined abuse, investigated and fired Goodbred. He was later barred from the industry by the Financial Industry Regulatory Association (“ FINRA”).
The SEC Complaint charges Goodbred with five Counts: i) violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “34 Act”) and Rule 10b-5 thereunder for using falsehood and deceit, and acting with scienter, in connection with the sale of securities; ii) violation of Section 17(a)(1) of the Securities Act of 1933, as amended (the “33 Act”) for engaging in fraud, intentionally or recklessly, in the sale of securities; iii) violation of Sections 17(a)(2) and 17(a)(3) of the 33 Act for obtaining money by negligently using untrue statements in connection with the sale of securities; iv) violation of Section 206(1) of the Investment Advisers Act of 1940, as amended (the “40 Act”) for intentionally or recklessly using schemes to defraud clients while acting as an investment adviser; and v) violation of Section 206 (2) of the 40 Act for negligently using schemes to defraud clients while acting as an investment adviser.
Through the actions of the Successor Trustee, the Client has been made whole, with Goodbred returning $454,141 and the remaining losses being paid in an arbitration claim settlement with LPL for failure to supervise. The SEC action may result in additional compensation. This has allowed the victim to live her remaining days safely and comfortably in an assisted living facility. However, this is not typical. This senior was lucky because she had a revocable trust and had named a Successor Trustee who identified the cognitive decline and investigated her finances. That led to an investigation by LPL and the ensuing legal filings. If the senior had named the financial advisor as successor trustee, there would have been no checks and balances and the crime would likely have never been uncovered.
The Consumer Protection Financial Bureau recently issued a report, “Recovering from Elder Financial Exploitation,” which noted that most victims do not recover their losses. Some of the key factors in both susceptibilities to abuse and the odds of recovery are cognitive decline and the degree of social support. While this victim suffered from a cognitive decline that lessened her chances of recovery, she had at least one important support person – the Successor Trustee. In this case, the elderly victim’s funds were also recovered because the perpetrator was known and had assets to disgorge. In addition, there was a large financial institution, LPL, with potential liability as well. One of the CPFB’s conclusions was that it is important to publicize successes against perpetrators and those institutions that fail to supervise their employees. We are doing our part.