Claims of exploitation of the elderly in the sale of financial products.

• Author: Passaro, Geralyn M.

A new wave of litigation sweeping across our nation involves the sale of financial products, particularly annuities, (1) that are sold to senior citizens. Savvy attorneys have brought lawsuits against sellers of these products under elder abuse statutes in the form of class actions and individual claims.

Distinctions Between Financial Products

Before any analysis of the elder abuse statutes, it is important to have a basic understanding of the financial products that are the subject of elder abuse claims. There are two basic types of annuities on the market:

* Fixed annuities--Fixed annuities earn a guaranteed rate of interest for a specific time period, such as one, three, or five years. Once the guarantee period is over, a new interest rate is set for the next period. This guarantee of both interest and principal makes fixed annuities somewhat similar to certificates of deposit (CDs) purchased from a bank. Unlike the typical CD, an annuity is not backed by the Federal Deposit Insurance Corporation.

A subclass of fixed annuities is equity indexed annuities. These are for a fixed term; however their interest is not guaranteed, but rather tied to an index, such as the S&P 500. Therefore, these annuities are capable of increasing the return if the market is good, yet they typically have a minimum interest guarantee of usually two to three percent. These annuities also generally have high surrender periods, which means that if the annuities are surrendered before the expiration of the fixed term, they will incur substantial penalties, as high as 15 to 18 percent. Generally, the surrender period makes them a disadvantageous investment vehicle for seniors who will need access to their money as they age and their health deteriorates.

* Variable Annuities--Variable annuities offer a range of investment or funding options which may include stocks, bonds, or money market instruments. Neither principal nor return are guaranteed in these types of annuities since they are tied to the performance of the underlying investment options. Some variable annuities offer a fixed account option that guarantees both principal and interest, much like a fixed annuity. In this manner, the monies can be split between a low risk option and an aggressive, more risky option.

Elder Abuse Statutes

More than half of the states in the U.S., as well as the Virgin Islands and Guam, have statutes that prohibit exploitation of the elderly. (2) Most state statutes provide penalties for physical abuse or neglect of an elder or dependent adult, and eight states provide penalties for physical or emotional abuse of an elder or vulnerable adult. (3) Other states penalize mere failure to report suspected elder abuse to the proper authorities. Once elder abuse is reported, the state social workers or other state agency representatives are charged with the responsibility of correcting the abusive situation. In these states, no cause of action is available to the family or the victim against the abuser. Other states have elder or dependent adult statutes that create some sort of protection but do not provide specific penalties for abuse. (4)

As a state with vast numbers of senior citizens, Florida enacted in 1973 the Adult Protective Services Act, F.S. [subsection] 415.101 through 415.113. This statute creates a private cause of action for a violation of the act and provides that "a vulnerable adult who has been abused, neglected or exploited as specified in this chapter has a cause of action against any perpetrator and may recover actual and punitive damage for such abuse, neglect or exploitation." (5) As an incentive to plaintiffs' attorneys, the statute provides for recovery of attorneys' fees and costs. (6)

Other state statutes...