Elder Fraud & Financial Abuse

Many years ago a friend called me for help. My friend was a caretaker for an elderly man who had been “robbed” by a nephew while hospitalized. The victim was retired, lived alone, and had no immediate family. He had suffered an injury that required hospitalization. The nephew found out about the hospitalization and drove to the hospital with flowers and an offer to “help.” The old man would be away from home for weeks, and was worried about paying his bills. “Let me help with that, so you can focus your energy on getting better,” came the offer from the nephew.

The next day the nephew showed up with a power of attorney. By the time his uncle returned home, the nephew had robbed him blind, using the power of attorney to close bank and investment accounts. Assuring his uncle he was merely keeping the money “safe,” he had instead transferred it to an accomplice, who in turn invested it in a mobile home development in South Carolina. Tracing how the money went from A to Z was not easy, nor was the litigation. The nephew maintained that his uncle had “gifted” him the money out of love and affection. The jury awarded the full amount taken, interest, punitive damages, and attorneys fees. The Second District Court of Appeals sustained the award and eventually every penny of the judgment was recovered. Scott vs. Hall, et. al, 87-CV-3727 (Mont. Co. Com. Pleas). That was the first of many cases where I was called upon to help an older person recover money taken by a family member “for safekeeping.”

Financial scams targeting seniors are common, and often the perpetrator is a family member. Older Americans are vulnerable to fraud and financial abuse because they commonly experience some degree of cognitive decline, through natural causes or from medications, and can have difficulty understanding their changing world. The Internet, personal computers, appliances with complex controls and other indicia of contemporary life can accelerate disorientation of an aging mind, and seniors who spend most of their time at home can feel isolated and alone.

A power of attorney is a written authorization giving one person the legal authority to act for another person, typically regarding financial affairs like bank accounts and investments. In the hands of someone trustworthy, a power of attorney can be an important tool to manage finances in the event of a disability. In the hands of a financial predator or a greedy family member, a power of attorney can be used to secretly steal money and assets, readily bypassing the normal safeguards employed by financial institutions.

If someone has been the victim of fraud or financial abuse involving an unauthorized use of power of attorney, a lawsuit can be filed against the appointee for breach of fiduciary duty and conversion. See, e.g., Spitzer v. Jackson, 96 Ohio App.3d 313 (Ohio App. 2 Dist., 1994). If successful, the victim will be entitled to recover the stolen property, and may receive punitive damages and attorneys’ fees. See Fisher v. Barker, 159 Ohio App.3d 745, 750-752 (Ohio App. 2 Dist., 2005). This is because the execution of a power of attorney gives rise to a fiduciary relationship between the principal (here, the victim) and the agent (the appointee). See, e.g., Connelly v. Balkwill, 160 Ohio St. 430, 440 (1954); LeMar v. Ickes, 2009 WL 2215091, *2 (Ohio App. 9 Dist.). If the agent fails to act in accordance with his fiduciary duties of fidelity and good faith, he or she is liable to the principal for any resulting losses. Rudy v. Bodenmiller, 1990 WL 205109, *3 (Ohio App. 2 Dist.). Fiduciary status also imposes on an agent a duty to inform the principal of all facts relating to the subject matter of the agency that would affect the principal’s interests. Testa v. Roberts, 44 Ohio App.3d 161, 164 (Ohio App.,1988).

An appointee who uses his or her principal’s assets for their own benefit breaches the fiduciary duty and commits conversion. Conversion consists of three basic elements: (1) a defendant’s exercise of dominion or control (2) over the victim’s property (3) in a manner inconsistent with the victim’s rights of ownership. Dice v. White Family Cos., 173 Ohio App.3d 472, 477 (Ohio App. 2 Dist., 2007). If a defendant comes into possession of property lawfully, as is the case when a power of attorney is employed, the victim must prove two additional elements to establish conversion: (1) that he or she demanded the return of the property after the defendant exercised dominion or control over the property and (2) that the defendant refused to deliver the property to the victim. Id. If the victim proves conversion, the court will order the property be returned. If the defendant’s conduct was wanton or otherwise aggravated or involved elements of fraud, malice, or insult, the victim is entitled to punitive damages. Preston v. Murty (1987), 32 Ohio St.3d 334, 336; Fisher, 159 Ohio App.3d at 750.

It is not uncommon for the perpetrator to defend his or her actions by claiming the victim was senile, needed to be “protected” from foolishly spending their own money, and that the money therefore was taken for “safekeeping.” However, an honest friend or family member would be ill-advised to employ a power of attorney to transfer assets from the senior to their own account for safekeeping, because the act of changing ownership constitutes conversion if the senior’s demands for its return are refused. See Preston v. Murty, supra.

As the number of seniors in the general population rapidly increases, we are going to see a corresponding increase in fraud perpetrated using a power of attorney. Be prepared.