How My Elderly Client Lost $1.3 Million

I didn't get home until close to midnight, but the message on my voice mail jolted me wide-awake. One of my largest clients was wiring $270,000 to NatWest Bank in London. The brokerage was calling just to make sure the wire was okay.

Instantly, all the pieces clicked together: My client was being scammed! For months, he had told me about a big inheritance he expected. He was a wealthy professional, and he came from a successful family, so that didn’t seem overly surprising. But he had refused to answer questions about the inheritance -- and slowly I grew suspicious.

Now, I shouted into the telephone, “No, don’t send that wire!” The brokerage agreed to hold it up overnight. And as I asked more questions, the phone rep and others on the night shift told me of several other wires -- all before the client had retained me and all sent to Europe -- worth $1.3 million in all.

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My client is past 80, but he is still active -- heck, he is still working. He had been a superb investor, his son later told me, but to me he didn’t seem savvy about his investments.

It’s not uncommon for our financial skills to deteriorate as we age, leaving us vulnerable to scams. About half of Americans in their eighties suffer from either full-blown dementia or milder cognitive impairment, experts say. A psychiatrist friend told me that this kind of impairment can attack a person’s judgment before it touches his memory. My client has an excellent memory.

The initial bait that hooked him seemed like something only a fool would fall for. A fax purporting to be from a staffer on the Swiss Banking Commission had arrived four or five months earlier. It said someone with my client’s last name, (my client has an unusual last name) had died in 1996 without a will, leaving $17.5 million unclaimed. The Swiss bureaucrat wanted my client to misrepresent himself as a long-lost, distant cousin. Then my client and the bureaucrat would divvy up the booty.

As that classic 1939 W.C. Fields movie was titled, “You Can’t Cheat an Honest Man.” But once my client called the scam artists (their number was on the fax), he found himself in the hands of skilled criminals. He hired a Swiss lawyer that they recommended -- or, at least, he thought it was a Swiss lawyer -- to investigate the deal. He made phone calls to “officials” in Berne and London -- and he received return calls, supposedly from their offices.

How did he surrender $1.3 million? He gave it up slowly, over months. The scammers first said he had to pay Swiss inheritance taxes, then user fees, then new fees tacked on because of anti-terrorism laws in England, where the inheritance was supposedly intercepted while en route to the U.S.

Of course, all the money wound up in the criminals’ pockets. But all of this sounded at least somewhat plausible, so my client kept paying. And the deeper he became ensnared, the easier it became to defraud him, because he had already invested so much in the belief that there really was an inheritance. If he didn’t pay the next bit, his dream of using the money to create a charitable foundation would die.

The next morning, we argued over whether to wire the $270,000. I had called him the night before after stopping the wire and told him I thought he was being scammed. He angrily disputed my assertion. He slept little, if any. Now he told me, “I need this wire to go out or I lose the whole thing.”

I’m a partner in a registered investment advisory firm. That makes me a fiduciary -- I have to act at all times in my client’s best interest. But he was the client. At the end of the day, if he wanted to send the money, I couldn’t stop him. But I didn’t tell him that.

As the stalemate continued, I was fortunate to find Todd Schwartz, a Portland, Ore., lawyer who represents investment advisers. His advice was a lifesaver. He said I needed to get all the details of the scam I could from my client, and call the FBI. “We’re going to have to make an assumption that he’s being abused because he’s elderly,” Schwartz said. “Elder-law statutes should protect you. Confidentiality stops with illegal activity.” Interestingly, other compliance experts I called said I had no authority to call law enforcement, that all I could do was tell my client he was being scammed and fire him (that is, dump him as my client). In hindsight, I’m glad I listened to Schwartz.

Schwartz did tell me, however, that I couldn’t contact my client’s family without his permission -- which my client wouldn’t give me.

So I called the FBI, and an agent called my client. Slowly, painfully, he came to realize that he had been deceived. He was deeply embarrassed and ashamed. Finally, I talked him into contacting his son. The son persuaded his father to give him a power of attorney over the account and moved his assets to a money manager the son knew. I can’t say I was sorry to see the saga end. It had been an incredibly draining experience for me.

FBI agents interviewed my client several times. Then they hooked him up to a wire and had him talk repeatedly on the telephone to his “contacts” in Europe.

Last I heard, the FBI had referred the case to Scotland Yard. But despite repeated inquiries, neither the U.S. Attorney’s Office in Maryland nor the FBI would give me any details about the case. Few cases like my client’s ever end with the recovery of any money, much less arrests and imprisonment.

But this is a story with a message. If you’re over 65, you need a durable or springing power of attorney that lets a trusted relative or friend assume responsibility for your investments, if and when that becomes necessary, says David Laibson, a Harvard economics professor who specializes in cognitive problems in senior investors. Advisers, like myself, need to spot problems related to deteriorating mental faculties early and nip them before they result in serious financial harm. Ditto for relatives of seniors. That’s why my client gave me permission to write this story-- as long as his privacy was preserved.

My client -- who had been professionally successful and a superb investor -- could afford to lose $1.3 million without it affecting his lifestyle. That’s a huge silver lining for him. Few people, elderly or otherwise, fall into that category.

Steven T. Goldberg (bio) is an investment adviser in the Washington, D.C. area.