New “Financial Abuse” Mandatory Reporting Requirements For Oregon Investment Adviser Representatives

by Tonkon Torp LLP

Tonkon Torp LLP

Significant changes are coming to state, regulatory, and federal law with respect to reporting financial abuse of "vulnerable persons." These legal changes will impact the day-to-day operations of financial services companies. This article, which covers changes to Oregon law, is the first of three articles on this issue. Look for updates on changes to regulatory requirements and federal law soon.
Effective January 1, 2018, Oregon's securities regulation laws started imposing a mandatory reporting requirement in certain circumstances on "qualified individuals"—including investment adviser representatives—to protect "vulnerable persons" from financial exploitation. The amendments to the securities regulation laws will be codified in ORS Chapter 59 and will overlap with ORS Chapter 124 (Abuse Prevention and Reporting), FINRA rules going into effect in February 2018, and the recently enacted Elder Abuse Prevention and Prosecution Act. Those in the financial services industry need to be aware of these changes and the duties they may now have under Oregon and federal law.
Scope of the Amendments to ORS Chapter 59
The statute will soon make certain individuals mandatory reporters of financial abuse in some situations. Under the amendments to Chapter 59, any "qualified individual" with "reasonable cause to believe that financial exploitation of a vulnerable person with whom the qualified individual comes into contact has occurred...[or been] attempted shall...notify the Department of Consumer and Business Services..."   
The statute defines "qualified individual" to include a salesperson, "an investment adviser representative," and "a person who serves in a supervisory, compliance or legal capacity for a broker-dealer or state investment adviser, or who is otherwise identified in the written supervisory procedures of a broker-dealer or state investment adviser." This definition includes a wide swath of individuals in financial services industries, though there is an exception for some individuals who work for banks, credit unions, and trust companies.
The definition of "vulnerable person" for ORS Chapter 59 comes from a reference to a different Oregon statute, ORS Chapter 124. There, Oregon law defines a "vulnerable person" as anyone who is over the age of 65, financially incapable, or incapacitated, and anyone with "a disability who is susceptible to force, threat, duress, coercion, persuasion or physical or emotional injury..." 
Similarly, the law's definition of "financial exploitation" is broad and includes (among other things) wrongfully taking assets, funds, or property of another; "alarming" or threatening another person in order to wrongfully take or appropriate money or property of that person; misappropriating, misusing, or transferring without authorization any money from any account held jointly or singly by another person; or using the income or assets of another person for purposes other than the support and maintenance of the person without the person's consent.
Protective Measures and Penalties under ORS Chapter 59
If a "qualified individual" has "reasonable cause to believe" that financial exploitation of a vulnerable person has occurred or been attempted, the statute requires the qualified individual to notify the Department of Consumer and Business Services (DCBS). The notification may be made orally or in writing, but must include the following information: the name and address of the vulnerable person; the identity of all persons that the qualified individual believes are responsible for the suspected or attempted financial exploitation; and the nature and extent of the suspected or attempted financial exploitation. By statute, the Department of Consumer and Business Services will immediately forward the notification the Department of Human Services (DHS) in all instances, and the DCBS may notify a law enforcement agency in some circumstances.
The mandatory reporting requirement is waived for a qualified individual who works for an FDIC-insured institution, credit union, or trust company organized under ORS Chapter 709 is expressly excluded from the mandatory reporting requirement.
In addition to the mandatory reporting requirement mentioned above, the amendments to ORS Chapter 59 permit two discretionary actions, including additional reporting to designated third parties, as well as delayed disbursements from a vulnerable person's account. The qualified individual must follow the procedures set out in the statute for these actions. Notably, the qualified individual may notify a third party that was previously designated to receive information regarding the vulnerable person, but not if that the third party itself is not suspect of actual or attempted financial exploitation of the vulnerable person. Likewise, a disbursement may only be delayed for a specific period of time, and notice must be given to all parties on the account and to DCBS and DHS. The disbursement delay cannot be longer than 15 days without approval from DCBS.
The amendments contain a safe harbor provision for good faith actors and a penalty for those who violate (or help in the violation of) the statute. Specifically, the safe harbor provision provides that qualified individuals, broker-dealers, and state investment advisers are not liable for disclosing information to DCBS or DHS, disclosing information to previously authorized third parties, and delaying disbursements, so long as those actions were performed in good faith, with reasonable cause, and with the exercise of reasonable care. On the other hand, the Bill subjects anyone who violates or procures, aids, or abets the violation of the amendments, to a penalty of up to $1,000 for every violation.
Overlap with ORS Chapter 124
Because the amendments to ORS Chapter 59 adopt the definition of "vulnerable person" from ORS Chapter 124, a vulnerable person can benefit from the protections under either ORS Chapter 124 or ORS Chapter 59, or both. Under ORS Chapter 124, a vulnerable person who "suffers injury" or damage "by reason abuse" has a cause of action against "any person who has caused abuse or who has permitted another person to engage abuse..." (emphasis added). The overlay between ORS Chapter 59 and Chapter 124 could be significant. If a "qualified individual" under ORS Chapter 59 does not report suspected financial abuse as required by the amendments, then the "qualified individual" may well be at risk for enhanced damages (including trebling actual damages and having to pay attorney fees and costs) under Chapter 124 for "permit[ing] another person to engage in" financial abuse. Potential damage awards under ORS Chapter 124 may pose significant risks for "qualified individuals" under ORS Chapter 59, in addition to the potential penalties under Chapter 59 alone.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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