Note: Clients’ names have been changed to protect their identity
Dangers that can be seen coming in the distance are never the most dangerous. In 1962, the United States had been on the verge of nuclear war with the Soviets and Cuba, yet it was a single bullet fired from the shadows a year later that sent our country into turmoil.
For Ron Patterson, his nightmare was not standing in front of him waiting to face him head on. His attackers did not mug him and leave him beaten. Instead, his assailant took the form of a friendly voice on the other end of a telephone. Before this voice on the phone could steal anything from Ron, it had to convince him to hand over his most valuable asset willingly; his trust.
Christian Cordoba, President and Founder of California Retirement Advisors as well as a FedSavvy Advisor since the company’s inception, had been managing some of Ron Patterson’s assets for about twenty years prior to his attack, and if it wasn’t for Christian and his team, Ron would be left with nothing.
“Initially, we began to take notice of the additional requests for distributions above the set monthly amounts,” Cordoba said, when asked how this attack first came to their attention. “As the requests became more frequent and more urgent we began to inquire what the money was being used for. At first they seemed reasonable, but soon the reason for the previous request was now being given for another, or better said, the same reasons were being used again. Eventually he told us his story…
“Initial contact was made by phone, under the guise of having won a prize of some sort. The way he described it reminded me of an Ed McMahon’s Reader’s Digest announcement, which likely resonates with people in this age group, he was 82 at the time, as being somewhat legitimate.”
“I’ve never won anything in my life,” Ron told Christian. “They promised me I’d won something. I’d won a prize. They said they had my lottery earnings and car in storage, and if I paid them I’d get my winnings.”
Once Ron made a request and filled out the proper paperwork, the investment company would deposit that money into his account. Ron would then withdraw the money and go to Walmart to buy MoneyPaks, a prepaid card service. [MoneyPak does emphasize that many scams try to use their service for payment since it cannot be tracked, with various warnings and guides on how to spot an illegitimate business.] With the prepaid cards in hand, he would call the so-called “sweepstakes” and read the card numbers to the voice on the other end. Almost immediately, they would seize all the money from the MoneyPak cards and Ron would be left hoping that this was the last payment he needed to submit before they sent him his prize money.
After it was clear what was happening, Christian hardened his stance. “I began to hold him accountable to [his reasons for withdrawing money] and let him know ‘if you need $7,000 to pay for your credit card, bring me your bank statement and credit card statement the next time you come to request your next withdrawal, so I can see that the $7,000 was used for that purpose.’ Otherwise, I told him I would not be able to process his next request. Since I could not prevent him from taking his own money out, this meant that I would reluctantly have to remove myself as being the advisor/representative on his account. Since we were literally the only ones looking after his best interest and trying to protect him at that point, I expressed the importance of not allowing that to occur, but also, that I would have no choice, as continuously assisting him withdraw funds that were going to pay the scam artists, would violate my own conscience and code of ethics, in addition to opening myself up to potential liability.
The worst part about this situation, Cordoba admitted, was that there was essentially nothing he could do without the proper cooperation from Ron. “Our hands were tied to a degree because the client, although admitted finally that he was being scammed, was not willing to file a complaint, press charges, or attempt to prosecute the thieves. Therefore, the authorities perceived it as his willingness to gift his money to whomever he wished and said there was nothing they could do. Even if he wanted to press charges, you need a face to accuse. You can’t charge a voice on a telephone.”
When asked about the message he was trying to get across, Christian Cordoba’s answer was a simple one. “Informing,” he said. “Informing consumers that this is a significant and legitimate issue.”
Many might read this and think, “That would never happen to me. I would never fall for something like that.” While, yes, many of us would not be as trusting as Ron was in his situation, that does not mean you are impervious to fraud.
John Chichester, Founder and CEO of Chichester Financial Group LLC, described his clients Frank and Betty Reynolds, both in their 70s, as “two of the brightest clients I have ever worked with. Some people don’t stay as sharp with age, but that doesn’t apply to them. They have no trace of a diminished capacity.” That, however, didn’t protect them from losing everything they had.
Frank and Betty both worked for the state, saved up a decent amount of money, and were active in their financial planning, working hands on and building an 18 year relationship with their advisor, Anthony John Rodriguez.
“He made us a good amount of money,” Betty said. “He advised us on a good amount of investments that really did payoff. We trusted him.”
In 2012, Rodriguez advised them to take out all of their annuities and invest the money in precious metals. They would have to pay $43k in surrender charges, but that would be worth it with all the money they were going to be making once the gold prices skyrocketed.
“We bought the gold at about $1,700 an ounce,” Frank told me. “He promised us that in a few years it would be well over three grand. Well, you can see what happened. Right now it’s hovering right around a thousand.”
In 2013-2014 Rodriguez advised them it was time to move their gold. He had their entire stock shipped to himself and they turned over the 500 silver coins they were personally keeping, as well. After a while with no action taking place, they began to ask about the coins.
“The excuses seemed very reasonable at first,” Betty said. “But it eventually got the point where we scheduled a meeting with him to confront him about what was going on. When he realized that we were going to confront him, he cancelled the meeting.”
Anthony John Rodriguez skipped town with every coin the Reynolds owned.
“It’s a matter of trust, really,” Betty said. “We’re now very weary of trusting people.”
It wasn’t long before he was caught, but the damage was already done. The coins were nowhere to be found and he had outstanding debts in six figures. Even if the Reynolds were to win a judgment against him, there was nothing for them to recuperate.
Their money was gone.
“Nobody is immune,” John Chichester said. “Anyone of us can get scammed in some way, shape, or form. They play on our fears. They play on our emotion.”
Luckily, the Reynolds got in touch with John a few months later and he took over their case pro bono, in order to help them rebuild.
“We were so stressed without him,” Betty said. The value that an educated financial professional can bring to the table in these situations cannot be overstated, however, even financial professionals themselves can fall victim.
Just last week, the President and Founder of FedSavvy, Carol Schmidlin, almost fell victim to fraud herself.
It was a sunny Saturday afternoon when Carol Schmidlin was enjoying a day by the pool while her husband, Brett, was out playing golf with some friends. Carol answered a call from a number she didn’t recognize and they informed her that she had an outstanding credit card bill with an out-of-state bank that was way past due.
“They told me the case was already at a collection agency and legal action was already being taken,” she said. “If I acted quickly, however, I might be able to avoid legal action as it was still early in the process. I was bewildered. I never had a card with the bank they mentioned, so I immediately thought of my husband. ‘Is the card in my name or my husband’s?’ I asked the man on the other line. “‘Your husband’s’ the voice said. I gave them Brett’s contact information and hung up, quickly calling him so I’d reach him first.”
Brett was rounding out the back nine when he saw his wife calling. He answered with a smile on his face, expecting a nice check-in call before he headed back home. He was wrong. “What did you do?” Carol asked as soon as he picked up. “We owe $15,000. Why didn’t you pay this?”
“Once I caught my breath,” Carol said, “I could tell he had no idea what I was talking about.
“I never opened a credit card with that bank,” Brett quickly told her after she filled him in. “I definitely don’t owe $15,000 on a credit card, I don’t know what you’re talking about. Did they say your name was on the account?”
“No, they said it was your name on the account,” Carol told her husband.
“Then why would they possibly call you?” Brett asked, leaving them both very suspicious. He got the information the “Credit Card Agency” left with Carol and did some research on the internet, finding out that this was nothing but a scam.
If a few things went differently in this situation, the fraud attempt could have been successful. Carol and Brett are very smart to work together with their finances, never making big decisions without conferring with each other. Seniors are at a high risk for various reasons, but for example, what if Brett had been deceased? Would Carol have trusted the voice on the phone?
Using the following tips, you should be able to protect yourself against fraud attempts such as these.
Recognize that this is a legitimate issue.
Admitting the issue is always the first step. Everyone needs to admit to themselves that they are susceptible to fraud and so are their loved ones. Ask your advisor to have a conversation with you about the subject. Once you recognize that this is a legitimate threat, you will be on the lookout even when you’re not thinking about it.
Always use the financial “Buddy System.”
This is a classic case of two heads being better than one. Whether your buddy is your spouse, a relative, or a close friend, never make secret financial moves. Let your buddy know who your financial advisors are so they can reach out if they think you are having an issue. A lot of times fraud attempts play at the emotions and the simple act of discussing an investment with someone else can help you uncover whether or not it is a legitimate opportunity. This is what saved Carol Schmidlin from making a financial mistake and it could do the same for you.
Take advantage of available technology.
There a few programs available that will watch for unusual account activity. Christian Cordoba and his team have been using a program called E-Money for almost 10 years now. This program can be set to notify you, your advisor, and whoever else you wish whenever one of your accounts or lines of credit experiences unusual activity, whether or not they have access to said accounts. This is extremely helpful for cases such as Ron’s, where he did not have all of his assets with Christian. This program would have let Christian be aware of any unusual activity in Ron’s other accounts, basically just giving an extra watchful eye on his assets. If Ron had this in place, Christian might have been able to save him even sooner than he did.
Seniors and Young Adults are the two largest demographics for fraud, but everyone is susceptible. This is a growing issue and these attempts are only going to get more covert and more realistic as technology improves. The difference between being proactive and reactive could literally mean hundreds of thousands of dollars.
Brett O’Brien is an intern at FedSavvy Educational Solutions, a network of specially trained financial professionals who will take you through the complexities of the federal retirement system.