Currently filed with the Florida House of Representatives and the Florida Senate are bills that relate to the protection of senior and vulnerable investors. You may view House Bill 143, filed on January 2, 2019 here, and Senate Bill 146, filed on February 27, 2019 here. Although they are similar, the bills are not identical. The differences between the two bills are discussed below.
One proposed change is more form than substance. Chapter 415 of the Florida Statutes is entitled, “Adult Protectives Services;” Section 415.1034 is entitled, “Mandatory Reporting of Abuse, Neglect, or Exploitation of Vulnerable Adults; Mandatory Reports of Death.” Florida is a mandatory reporting state. Any person “who knows, or has reasonable cause to suspect, that a vulnerable adult has been or is being abused, neglected, or exploited shall immediately report such knowledge or suspicion to the central abuse hotline.” §415.1034(1)(a), Fla. Stat. (2018). At present, Section 415.1034(1)(a) includes a list of persons required to report, such as bank employees, health and mental health professionals, and physicians, although, as mentioned previously, mandatory reporting is required by every person, i.e., by all persons including those persons who are not identified in the statute.
Both bills would amend Section 415.1304(1)(a) to add “[securities] dealer, investment adviser, or associated person under chapter 517” as persons or entities specifically identified as subject to the mandatory reporting provision found in Section 415.1034(1)(a). Adding securities dealers, investment advisers and associated persons registered under Chapter 517 of the Florida Statutes does not change the mandatory reporting requirement, which already exists. It simply adds securities dealers, investment advisers, and associated persons to the list of persons identified in the statute.
Chapter 517 of the Florida Statutes is known as the “Florida Securities and Investor Protection Act.” §517.011, Fla. Stat. (2018). Both bills will amend Chapter 517 by creating Section 517.34, which is entitled, “Protection of Specified Adults.” Proposed Section 517.34 is similar to FINRA Rule 2165 (“Financial Exploitation of Specified Adults”), although a significant difference exists.
Section 517.34 will extend to transactions as well as disbursements from accounts. FINRA Rule 2165 concerns only “a disbursement of funds or securities” from the account of a “Specified Adult.” Thus, the proposed Florida law will allow a securities dealer, investment advisor or associated person to delay a transaction, which could include a purchase or sale of an investment, if the securities dealer, investment advisor or associated person “reasonably believes that exploitation of the specified adult has occurred, is occurring, has been attempted, or will be attempted in connection with the transaction or disbursement.” A specified adult is defined as “a natural person 65 years of age or older, or a vulnerable adult defined in s. 415.102.” Under Section 415.102 (28), a “vulnerable adult” is defined as “a person 18 years of age or older whose ability to perform the normal activities of daily living or to provide for his or her own care or protection is impaired due to a mental, emotional, sensory, long-term physical, or developmental disability or dysfunction, or brain damage, or the infirmities of aging.” §415.102(28), Fla. Stat. (2018).
Like FINRA Rule 2165, proposed Section 517.34 will allow a securities dealer or investment adviser to place a 15 business day delay on a transaction or disbursement, with the ability to extend the delay for up to an additional 10 business days if the securities dealer or investment adviser, based on its review of available facts and circumstances, continues to have a good faith belief that exploitation of a financial adult “has occurred, is occurring, has been attempted or will be attempted.” The new law also will allow a court of competent jurisdiction to extend or shorten any delay.
Section 517.34 will require written notice to individuals who have authority in regard to the account, including a trusted contact, unless those individuals or the trusted contact are the persons who are suspected of the financial exploitation. The notice, which may be provided electronically, must set forth the reason for the hold. Notice is required within three business days under the proposed Florida statute, while FINRA Rule 2165(b)(1)(B) requires notice within two business days. Oral or written notice is allowed under FINRA Rule 2165(b)(1)(B), which also requires specification of the reason for the hold.
Both versions of Section 517.34 require the securities dealer or investment adviser to report the fact of the delay to the Florida Office of Financial Regulation (OFR), although the two versions of the bill differ in regard to the reporting requirement. Under the House Bill, a securities dealer or investment adviser must provide detailed information quarterly, including the name and address of the branch office involved in the delay, a general description for the reason for the delay, the length of the delay, and whether the disbursement or transaction ultimately was executed. OFR is required to submit a summary of the delay information that it receives annually to the Governor, President of the Florida Senate and Speaker of the Florida House. The Senate version only requires written or oral notice to the OFR, including the reason for the hold, within three business days.
The House version of Section 517.34 has very comprehensive requirements regarding the type of training that securities dealers and investment advisers must provide to their registered employees, including frequency of training and components of the training given to registered persons. The plain language of the House bill requires the development of training policies and programs, implementation of a reporting system to alert supervisory personnel, and actual training as a condition precedent to placing a delay on a transaction or disbursement. The House version mandates an hour of training for all associated persons initially and every two years after the initial training. The Senate version generally has the same requirements except for the frequency of training or the topics that any training must cover.
One other significant difference between the two versions of Section 517.34 relates to immunity. In the House version, immunity from civil and administrative liability exists based upon the presumption that the person placing the hold acted with a reasonable belief of exploitation, which may be overcome only upon a showing of clear and convincing evidence. The Senate version provides for immunity from civil and administrative liability based upon the same presumption, but allows that immunity to be overcome by a preponderance of the evidence showing “lack of reasonable belief” of exploitation. Both versions of the bill specify that they will take effect on July 1, 2019.
Both bills must go through committee hearings before they make their way to the respective floors of the Florida House of Representatives and Florida Senate for vote. Last year’s version of the bill, which was virtually identical to the version of the bill introduced in the Florida House of Representatives this year, was passed by the Florida House of Representatives by a vote of 112 in favor and only three against. The same version of the bill sailed through three committees of the Florida Senate without a single “no” vote. The bill did not make its way to the Florida Senate for vote before the end of the 2018 legislative session.
We will keep you advised regarding developments as they occur, including committee action by both the Florida House of Representatives and Florida Senate regarding the bills. The Florida Senate version is referred to the (i) Children, Families and Elder Affairs Committee, (ii) Banking and Insurance Committee, and (iii) Rules Committee. The Florida House of Representatives version is referred to the (i) Insurance & Banking Subcommittee, (ii) Government Operations & Technology Appropriations Subcommittee, and (iii) Commerce Committee. The 2019 Florida Legislative session, which began on Tuesday, March 5, 2019, will conclude on Friday, May 3, 2019.
*Alex J. Sabo is a Principal in Bressler’s Miami office. He is a member of the firm’s Senior and Vulnerable Investor Group. He is a member of the Elder Law Section of The Florida Bar and that section’s Abuse, Neglect and Exploitation Committee. Mr. Sabo frequently lectures on senior issues. He is the immediate past president of the Florida Securities Dealers Association, Inc., one of the country's oldest, largest and most respected state securities associations