JPMorgan has lost an attempt to stop an 85-year-old widow from pursuing claims in arbitration that the company failed to prevent her son from siphoning more than $8 million from her bank accounts.
The widow, Susan Kraus, filed a claim in October to the Financial Industry Regulatory Authority against JPMorgan and several other financial institutions seeking to recover the millions of dollars that her son, Brett Graham, had taken from her accounts following her husband’s death in 2017.
FINRA found under its bylaws that the claims should be heard behind closed doors in arbitration. JPMorgan subsequently sued Kraus in federal court in New York seeking to stop the proceedings. The bank argued that Kraus was never technically a customer of JPMorgan Securities since the dispute is over checking and savings accounts that aren’t under the jurisdiction of FINRA. The company said the claims should be decided in court or by a non-FINRA arbitration panel.
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On Monday, federal judge Jesse Furman dismissed JPMorgan’s suit, saying the arbitrators themselves have to decide where her claims should be heard. The bank could have refused the arbitration and sought immediate relief in court, Furman said, but instead sought to throw out the FINRA arbitration proceeding, a request that was denied.
“Having made that choice (not to mention, having already submitted the question to the FINRA arbitrators and lost), JPMS may not now obtain relief from a court,” the judge said.
Wall Street firms are facing increasing scrutiny over whether they can be held responsible for losses by clients whose ability to understand their investments has been compromised as American retirees are living longer while sitting atop a record stockpile of wealth. While financial institutions screen customers to ensure they’re sophisticated enough to make complex investments, practices for monitoring their cognition as they age are less regimented.
“Money laundering and wire fraud happen at financial institutions and we have alleged these financial institutions either don’t have appropriate policies in place or didn’t follow them to protect a senior in need,” said Kraus’ lawyer, Jenice Malecki.
A spokesperson for JPMorgan had no immediate comment on the decision.
A federal judge in Boston in October threw out a lawsuit against JPMorgan filed by a once-wealthy client whose portfolio disintegrated as he slid into dementia, saying it didn’t appear JPMorgan knew about the client’s deteriorating cognition over the years in which he lost a fortune the firm had pegged at more than $50 million.
Graham pleaded guilty in Miami in May to wire fraud for defrauding his mother out of about $8.4 million as part of a deal with prosecutors. He’s faced with as much as 20 years in prison at his sentencing, which is scheduled for September.
Prosecutors said that Graham began helping his mother in 2017 after she became a widow and began transferring money from her accounts into his own checking account starting in September 2019. The government alleged that he told her financial advisor that he was making investments on her behalf and paying for medical care, when instead he was spending it on himself and others — including purchases of art and jewelry.
Kraus has also sued Graham in state court in California.
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