On August 6, 2018, the Texas Securities Commissioner (the “Commissioner”) entered an emergency cease and desist order against a computer repairman alleged to have bilked an 88 year old senior out of nearly $28,000 by orchestrating transfers from and trading securities in the man’s investment account. The order marks the Commissioner’s first action under Texas’ new vulnerable adult protection law, Tex. Rev. Civ. Stat. Art. 581-1, § 45 et seq., which went into effect on September 1, 2017 and is aimed at combatting financial exploitation of such persons.
The new law applies to broker-dealers, state registered investment advisors and SEC-registered investments advisors and requires internal review and reporting to the Texas Department of Family and Protective Services (“DFPS”) and the Commissioner if there is cause to believe that financial exploitation of a vulnerable adult has occurred, is occurring, or has been attempted. Notably, the statute makes it mandatory for employees of these institutions to notify their firm of suspected financial exploitation. It also requires firms to adopt policies and procedures for internal review and reporting of suspected abuse. Once a report is filed, a firm may place a temporary hold on transactions in the vulnerable adult’s accounts for up to ten business days. That hold must be extended to thirty business days, if requested by the Commissioner, DFPS, or law enforcement.
Pursuant to the new law, on July 25, 2018, the broker-dealer where the account at issue was held filed a report with the Commissioner outlining the suspected financial exploitation of the 88 year old. It also temporarily blocked online trading and fund withdrawals from the man’s investment account. Following its receipt of the report, the Commissioner directed the firm to extend the temporary block and to place a hold on any transactions from any account for the senior that related in any way to the computer repairman for a period of thirty business days as permitted by the statute.
The Commissioner’s action demonstrates the State’s commitment to addressing the financial exploitation of vulnerable adults and underscores the role required of broker-dealers and financial advisors in detecting and reporting this type of conduct under the new law.