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Brett Darken

The Racketeer Influenced and Corrupt Organizations (RICO) Act was passed by Congress and signed into law by President Nixon 50 years ago, in 1970. Originally, the act was designed to combat organized crime, but the law’s application has expanded to include any group profiting from illegal activity. Probate fraud cases, in particular, can be harrowing because fraudsters take advantage of people in vulnerable emotional states. In the three cases discussed below, you will see how bad actors can manipulate the legal system to perpetuate their fraud schemes.

Attorneys target assets of dementia patient

A $22 million civil RICO Act case from Cleveland, Ohio, has survived another procedural hurdle and is headed to trial in Cuyahoga County court.

The racketeering suit was filed in January 2019 by Charles Longo and Associates, a Cleveland legal firm, on behalf of Dr. Medhi Saghafi and his family. The case is rooted in a guardianship ordered by the Lorain County probate court and has survived more than a year of procedural challenges.

A guardianship is a legal tool used by the courts to protect the health and assets of an incapacitated person. In this case, the wife of Dr. Saghafi was placed in a guardianship because she was suffering from dementia and Alzheimer’s disease.

The defendants include a group of eight attorneys from the Cleveland area, and the 54-page suit claims that the attorneys and other defendants defrauded the court into ordering an illegal guardianship. Then, using the guardianship that was intended to protect Mrs. Saghafi, the defendants instead turned the guardianship into an enterprise that they used to enrich themselves.

The suit asks for $22 million in damages, which makes the case one of the largest estate fraud cases in recent U.S. history.

Lawyers did this senior wrong

The Ohio case has parallels to a guardianship case based in Florida’s probate courts. In 2017, Julian Bivins won a $16.7 million award in Florida federal court against five attorneys who targeted the assets of his father, Oliver Bivins, a millionaire Texas oil man, while Oliver was held in a guardianship.

Writing for the Palm Beach Post, John Pacenti explained, “The younger Bivins said he felt his father was ‘held captive’ in South Florida by the guardianship so the attorneys could liquidate real estate assets — including a New York City Upper East Side mansion — and charge more fees.”

The jury found that the attorneys not only breached their fiduciary duty but committed professional negligence.

3 Texas lawyers took on the largest bank in the U.S.

In an even bigger, but slightly different case, a Texas jury delivered a $4-billion-dollar punitive damage award against JPMorgan Chase for fraud in the estate of Max Hopper.

Hopper had about $19 million in assets in his estate, but had died without a will. JPMorgan Chase was hired by the heirs to administrate Hopper’s probate. They were responsible for collecting assets, paying debts and undertaking other legal and accounting tasks that are common in the processing of an estate.

After months of chaos, Hopper’s widow and his two children (from a previous marriage) sued JPMorgan Chase for breach of fiduciary duty, breach of contract and fraud. They claimed that the lawyers and accountants who were in charge of the probate had not only failed in their core tasks, but had created strife and problems rather than delivering solutions.

The month-long trial in Dallas ended in September 2017 when a jury found that JPMorgan Chase had committed fraud and breached its fiduciary duty to the heirs. In addition to the $4 billion in punitive damages, the jury awarded nearly $10 million dollars in actual damages and attorney fees to the Hopper family.

Fraud is at the heart of this racket

Fraud is an illegal activity often described as “stealing with a smile.” In the Saghafi case, the RICO complaint details how a guardianship that was intended to serve and protect an 80-year-old woman was in fact an organized enterprise that drained the family’s assets under the guise of guardianship care.

Cases involving guardianships, probates and estates will offer fraud examiners both opportunity and challenges for the next several years. In the U.S. alone, more than 2.8 million people die each year, but more than half of them do not have a will. If just 1% of these estates have some element of fraud, there will be more than 500 new estate fraud cases every week!

In a time of mourning, many people don’t know what to do or where to turn for clarity. Often, local news outlets will carry stories about probates or estates that are in a fight. Keep an eye on these. As a fraud examiner, make a direct contact with the parties involved. This might provide a lifeline out of conflict because you can deliver independent accounting and asset tracing expertise to heirs for the probate process.

Over the next 20 to 25 years, it’s estimated that more than $48 trillion in assets will transfer from the “boomer” generation to their children and grandchildren. Nearly all of this wealth transfer will be supervised by local courts in some version of a trust, estate or probate accounting. These transfers can be simple and involve the proper retitling of assets to the heirs or new owners. But they can also involve complex tax and revenue stream (royalty) analysis, as would happen if a person had owned oil wells, publishing rights, timber or an active business. A fraud examiner with expert knowledge in these areas can be an asset in an estate that is sifting through these elements.

The Saghafi case will provide many insights in the months ahead, and it is set for an August 2020 trial in Ohio.

Brett Darken writes about families, finance and fraud. He has been licensed in securities, insurance and real estate.

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