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finra rule 2165

Are you curious about how FINRA Rule 2165 can protect you or a loved one who is being financially exploited? FINRA Rule 2165 helps families and brokers who suspect securities fraud in a vulnerable adult’s account. It allows them to take key actions against investment loss

While their broker may be trustworthy, your parents or other elderly loved ones may reach a point where they are no longer able to make sound investment decisions.

A common example of this is when a parent becomes involved in a Ponzi scheme. Another often-seen scenario is when a parent is defrauded into allowing a nefarious third party access to their accounts.

Their accounts are quickly drained before an eagle-eyed broker or a caring son or daughter suspects investment fraud.

FINRA Rule 2165 is designed with folks like senior citizens in mind. The rule helps a broker look out for their vulnerable clients’ interests. It also enables them to do so before losses become catastrophic. 

FINRA Rule 2165: Financial Exploitation Defined

FINRA Rule 2165 defines “financial exploitation” as consisting of either of two circumstances. First, Rule 2165 identifies financial exploitation as the wrongful or unauthorized taking or use of a specified adult’s funds or securities.

This first definition is very broad and can encompass many types of financial exploitation.

Second, Rule 2165 defines financial exploitation as any action or omission, including through a power of attorney or a guardianship, to do any of the following things:

  •  Obtain control over a specified adult’s money, assets, or property through deception, intimidation, or undue influence; or 
  • Steal the specified adult’s money, assets, or property. 

FINRA Rule 2165 only protects “specified adults.” These are vulnerable people who may not be able to make their own financial decisions. FINRA Rule 2165 defines a “specified adult” as:

  • A person age 65 or older; or
  • A person age 18 or older who has a mental or physical impairment that impacts their ability to look after their own interests.

The financial exploitation definition under FINRA Rule 2165 relates only to actions taken against specified adults. If you do not fit into the category of “specified adult,” you still may have been the victim of securities fraud. If so, it’s important to reach out to an experienced securities fraud attorney as soon as possible. 

How FINRA Rule 2165 Protects Vulnerable Adults from Financial Exploitation

FINRA Rule 2165 and its sister rule, FINRA Rule 4512, protect vulnerable adults from financial exploitation. These rules work together to allow a vulnerable person’s broker to freeze disbursement of funds from an account suspected of financial exploitation.

They also allow a broker to notify a vulnerable person’s important contacts when the broker suspects financial exploitation is taking place.

Preventing the Disbursement of Funds When Financial Exploitation Is Suspected

A broker is able to place a temporary hold on a disbursement of funds or securities from a specified adult’s brokerage account if/when:

  • A broker has a reasonable belief that financial exploitation has been or will be attempted, has occurred or is occurring;
  • A broker notifies all parties authorized to transact in the account, as well as the account’s trusted contacts, about the temporary hold and the reason for it; and
  • A broker initiates an internal review of why they believe financial exploitation was taking place.

The notification to authorized persons on the account can be made orally or in writing (electronic communication is okay) within two business days. Brokers must communicate clearly and quickly about the temporary hold and the reason for the temporary hold.

When working with specified adults, a broker needs to maintain a list of trusted contacts. A trusted contact person does not have to be a signatory on the account but can be anyone the broker can share important account information with. 

Notification is a very important element of Rule 2165 because placing a hold on client funds is no small matter. However, if the broker suspects that the trusted contact is the person perpetrating the fraud, the broker is no longer under an obligation to notify them. 

Rule 2165 Amends Other Protections Against Exploitation

The SEC adopted FINRA Rule 2165 in February 2018, which amended FINRA Rule 4512. Previously, Rule 4512 only required brokers to collect and maintain basic personal data about their clients.

Now, brokers are required to make reasonable efforts to obtain and maintain the name of a trusted contact person as well. 

This revised rule is a great resource for investors and brokers alike. As the investor population ages, trusted contacts can be an excellent resource for brokers to share concerns about unusual client behavior or diminished capacity to make investment decisions.

Early communication can lead to better results for investors, caregivers, and brokers. It can even prevent financial exploitation in the first place.

Brokers Are Responsible for Compliance 

Brokers now must make decisions about whether their clients have the ability to make financial decisions for themselves. This can be difficult and even embarrassing where brokers and clients have worked together for many years.

Cognitive abilities of aging people and people with disabilities can change dramatically in short periods of time. Determining if and when a client is at risk of financial exploitation is a very delicate task. The responsibility falls on brokers to understand when transactions are legitimate or not. 

Contact a Securities Fraud Attorney

If you or a loved one has been financially exploited, you may have a legal right to pursue action against responsible parties. Experience is key in litigating cases like these.

We at The Law Offices of Robert Wayne Pearce, P.A., are eager to help you understand your rights. Robert Pearce has many years of experience in the area of securities fraud. He has arbitrated and mediated hundreds of investment-related disputes in his career.

Our team of experienced investment loss litigators has recovered over $175 million dollars for well-qualified investors. We help investors nationwide and internationally pursue claims for a variety of investment losses and frauds. Contact us today about a free initial consultation on your case.

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Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $170 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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