Retiring baby boomers, many with high equity and savings, becoming ripe target for financial predators, officials say
August 12, 2012|By Becky Yerak, Chicago Tribune reporter
Downers Grove retiree Robert Govenat was on the computer every day, watching prices of his stocks go down. It was November 2007, and a bear market was threatening. “He was about to have a nervous breakdown or a heart attack,” recalls his wife, Jan, a retired third-grade schoolteacher. Over lunch at a hot dog place in Darien, a longtime friend and financial planner Algird Norkus told Govenat that he had an alternative investment for select people: It would keep the couple’s principal safe and pay 13.5 percent annual interest.
Govenat went along. Eventually, the couple would lose nearly all of their life savings — $225,000. Govenat also steered his mother into what ultimately turned out to be a Ponzi scheme, and she lost more than $200,000, most of her assets.
Norkus pleaded guilty to one count of mail fraud. In March, he began serving 63 months in prison. He also was ordered to pay $4.6 million in restitution to nearly 70 victims, many elderly, including Robert and Jan Govenat, and Robert’s mother. His plea agreement said he commingled investors’ moneys, in part to make payments to other investors and in part to benefit himself.
“Don’t trust anyone,” Jan Govenat, 71, said Tuesday when asked what she learned from the experience. “I can’t tell you how many times I’ve said that to friends since this happened.” She also regretted not sharing their change in investment strategy with their two adult children.
Robert Govenat, 72, gets choked up discussing what happened with the savings of his mother, now 99 and living in a retirement community. “I’m not proud of what I’ve done to my mom,” he said last week with a quivering voice.
“You were trying to help,” his wife replied.
Govenat said he lets few people get close to him, but Norkus was one of them.
“I don’t trust anyone now, except my wife,” he said.
The couple’s two children never bring up the ordeal.
“It’s the silent death,” Robert said.
The couple, who once felt secure about their retirement years, now worry constantly about finances.
“We don’t sleep well,” Jan said.
Robert and Jan Govenat are hardly the only seniors burned by financial exploitation. In 2011, Illinois received 6,205 reports of suspected financial abuse and exploitation of senior citizens. The numbers have generally risen in recent years and are up 14 percent from 2007. Financial exploitation accounts for 57 percent of reported abuse cases against older adults.
Trying to counter such exploitation, Illinois has enacted several new laws.
As of Feb. 1, Illinois law requires front-line financial services workers to be trained to spot signs of elders being taken advantage of financially, as well as how to report it. Last year, only 2.2 percent of Illinois senior abuse cases were reported by financial institutions. New personnel must be trained within six months of their hiring, and employees must receive refresher training every three years. The Illinois Department on Aging calls banks “an important first line of defense against” financial predators.
In late July, Illinois added several more laws aimed at better protecting seniors. Taking effect in January 2013, they include making it tougher for scam artists to use stolen money to defend themselves in court and giving law enforcement greater access to reports of elder abuse compiled by senior services agencies.
Nationally, the newly formed federal Consumer Financial Protection Bureau in June said it was starting public inquiry to learn more about the ways in which older Americans are financially exploited. The request for public comments, with a deadline of Aug. 13, came as part of World Elder Abuse Awareness Day.
Seniors tend to be ideal targets
“Aging baby boomers have accumulated substantial assets, either through inheritance, home equity or a lifetime of saving for retirement,” Luis Aguilar, a commissioner of the Securities and Exchange Commission, said earlier this year. “The bad news is that this disparity between seniors and everyone else, including their own children, increases the vulnerability of seniors.”
Adds Chicago investors’ lawyer Andrew Stoltmann, who is representing the Govenat family: “Willie Sutton once said he robbed banks because that’s where the money is, and that’s why unscrupulous financial advisers are drawn to seniors like a moth to a flame.” Of the 1,000 financial fraud cases that Stoltmann has filed in the past 12 years, half involve investors age 65 and older.
Take Marshall Davies, 93, who helped oversee the traffic light system for the city of Chicago before he retired. He was admitted to St. Joseph Hospital in January 2008 due to hip pain that hindered his walking. Doctors said he would need in-home assistance upon discharge.
Carmelita Pasamba, a certified nursing assistant who cared for Davies while he was in the hospital, took the job.
Over the next 3 1/2 years, she and her family cared for Davies but also “stole” $536,682 from him, according to a recently filed lawsuit filed by Cook County Public Guardian Robert Harris.
The lawyer representing Pasamba in the case declined to comment.
The money saved by the never-married, “very frugal” Davies was used by his caregivers to buy a Mercedes, finance a son’s dance studio and a daughter’s nursing tuition, and make trips to retailers such as Best Buy, Harlem Furniture and Empire Carpet, said the suit, filed against six individuals and St. Joseph Hospital.
In 2008, Davies, an Illinois Institute of Technology graduate, was also diagnosed with dementia, but he still has lucid days. He’s living in an assisted-living facility on Chicago’s North Side. Davies had lived close to St. Joseph Hospital, and would eat at its cafeteria because meals were inexpensive. Today, he spends most of his time watching TV. Davies said he didn’t give Pasamba permission to use his money in that fashion. “I didn’t know what was going on there,” he told the Tribune on Wednesday. “I don’t know how she got that money.”
In October 2011, Cook County’s probate division named Harris guardian of both Davies and his estate. The Cook County guardian’s office is seeking a jury trial for its April 2012 “petition to issue a citation to recover assets.” The court document said that, in April 2008, just three months after meeting Davies, Pasamba asked a lawyer, also named as a defendant, to change Davies’ estate planning documents. The lawyer drafted a power of attorney giving Pasamba control over Davies’ assets and a new trust document that named her, her family and charities affiliated with the lawyer as the main beneficiaries upon Davies’ death. The hospital also is being sued. A lawyer for the hospital said it doesn’t comment on pending litigation.
“Pasamba continued her position as a certified nursing assistant at St. Joseph’s Hospital, and her co-workers knew of her newfound wealth,” said the guardian’s lawsuit, noting that she worked at the facility until 2011. James Burton, a lawyer in the public guardian’s office, said Davies still has about $300,000 in assets that are protected. Harris, Cook County’s public guardian, said his office has recovered $38 million in assets over the past eight years, mostly for seniors.
How the market pressured the Govenats
In 2004, Robert Govenat inherited several hundred thousand dollars from an aunt. “A lot of what he inherited from his aunt was in stocks,” said his wife, Jan. Govenat’s mother also sold some property and had invested some of the proceeds in stock. In 2007, “the market started to swing,” said Govenat, whose career included jobs at Harris Bank, Freddie Mac, the Federal Deposit Insurance Corp. and Resolution Trust Corp. In the 1960s, he was an examiner of savings and loans.
Norkus suggested selling the stocks and putting the family’s money into “corporate agreements” that assured the safety of principal and paid annual 13.5 percent interest, according to a civil lawsuit pending in Kane County. From 2006 to 2010, Norkus was also a registered representative for Madison Avenue Securities Inc., which sells financial and insurance products to the public, the suit said.
“I felt I was protected,” Robert Govenat said. “I had a personal guarantee from him.” Robert, who in 1990 had surgery for an abscess on his brain, said his wife was more wary than he was. “I said, ‘This is too good to be true,'” Jan said she told Norkus. But she, too, accepted his assurances. Stoltmann, their lawyer, said as people age their faculties aren’t as sharp as they once were. “These con men are so good at perceiving that,” Stoltmann said. “I don’t think Norkus would have tried this prior to 1990.” Robert said he had “blinders” on because Norkus was a friend; he and his wife dined with Norkus and his wife. They went to the wedding of Norkus’ son. “He came to our daughter’s wedding,” Jan recalled. “He didn’t go to our son’s wedding but he sent a box of Cuban cigars.”
Jan said she doesn’t blame Robert for trusting Norkus. “Think of someone you’ve known a long time who you think is a nice person, who you’d trust with anything,” Jan said. “That’s how we viewed this man.”
Alarms started going off in July 2010.
“He was starting to slow up on delivering checks to me,” Robert said. The couple was headed to Minnesota to see their new grandchild and needed a check. When they returned home, they still hadn’t gotten the check. “Trying to call him went right into his voice mail, or his voice mail was full,” Robert said. Robert and Jan found an address for Norkus’ Oak Brook office, but when they visited the building they found he had never had an office there.
That’s when the Govenats contacted federal law enforcement authorities. The Kane County civil suit filed by Govenat against Norkus and Madison Ave. claims that Madison Avenue had a duty to supervise Norkus and should have noticed several red flags, including Norkus having a large number of elderly customers. “Clearly, they didn’t,” Stoltmann said. Neither Madison nor its Chicago lawyers could be reached for comment.
The couple and their mother are seeking to recoup about $425,000 in losses and attorney’s fees. Meanwhile, Jan Govenat is living on her teacher’s pension, and Robert has Social Security. The couple and Govenat’s mother had some remaining stock that they sold to meet living expenses. They currently have about $25,000 in a money market account, but Robert has also taken out an $11,000 loan to pay some expenses for his mother, who receives about $800 a month in Social Security benefits.
They can no longer do the things for their children and grandchildren that they used to. Before the scam, for example, Robert and Jan would treat their children and grandchildren to a long weekend in the Wisconsin Dells. That practice has ceased. Home maintenance work has been deferred.
“For extra money, I drive for a local car agency to pick up cars,” Robert said. Jan Govenat struggles with what will happen if they manage to recoup some of their money. “If we do get anything back in a settlement, we don’t know what we’d do with it,” she said. “You don’t know who to trust.”
What to do if you’re elderly to prevent being scammed
Keep your guard up. Many financial advisers get paid by commission, so their interests aren’t always the same as investors. That’s particularly important to retiring seniors who are looking to roll over large sums of money.
Consider putting assets in a trust and hiring a bank trust department to manage it. They usually charge high fees but tend to be more conservative in how they manage funds. “I’ve sued banks, brokerage firms and insurance companies, but never a trust company,” lawyer Andrew Stoltmann said.
Ask the financial firm to send duplicate account statements to a trusted family member so a second set of eyes can possibly catch suspicious activities early. Or consider hiring a financial planner on an hourly basis once or twice a year to spend several hours reviewing statements from another firm.
Contact the Illinois Securities Department to inquire about a financial adviser. If any complaints have been lodged, be wary. “If you have a broker with two, three, four, five customer complaints, that’s a huge red flag,” Stoltmann said. Norkus, however, had no complaints, he noted.
Get caller ID to screen suspicious “private” or “unknown” calls.
Consider buying a locked mailbox, renting a post office box or installing a mail slot. “Knowledge is power, and if brokerage or bank statements are stolen, really bad things can happen,” Stoltmann said. A shredder is one of the best investments that seniors can make.
Anyone who suspects that an older person is being mistreated should call the Illinois Department on Aging’s 24-hour Elder Abuse Hotline at 1-866-800-1409.
SOURCES: Andrew Stoltmann, Illinois Department on Aging