Stockbroker Exonerated After Nephews and Niece Accuse Her of UTMA Fraud

September 11, 2015

Take one stockbroker aunt. Add two nephews and a niece. Have the aunt fund custodial accounts for those three family members. Then step back as the family apparently implodes, the aunt gets sued over the accounts, and, well, hey, what can I tell you: No good deed goes unpunished and family squabbles can go thermonuclear.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2013 and amended in May 2014, registered person Claimant Sabb sought $15,000 in damages and an expungement from her Central Registration Depository record ("CRD"). Since the circumstances surrounding this claim are somewhat unusual, I will let the FINRA Arbitration Decision speak for itself on the background:

Claimant asserted the following causes of action: expungement and defamation. The causes of action related to three custodial accounts established pursuant to the Uniform Transfers for Minors Act ("UTMA Accounts"). Claimant alleged that she initially funded each account with 100 shares of Merrill Lynch, Pierce, Fenner & Smith, Inc. common stock and intended that proceeds from the UTMA Accounts would one day be used to help her nephew and niece pay for college. Claimant alleged that she made occasional contributions to the UTMA Accounts and distributed assets to Jordan Davis and Austin Davis in times of need. Claimant further alleged that on or about April 4, 2013, Respondents submitted complaints to Wells Fargo Advisors Financial Network related to the UTMA Accounts, alleging "potential fraud, misappropriation of funds, possible comingling [sic] of finds and breach of fiduciary duty." Claimant asserted that after an investigation. Wells Fargo Advisors Financial Network denied the Respondents' complaints.

In the Matter of the FINRA Arbitration Between Donna Sabb, Claimant, vs. Jordan Davis, Austin Davis, Colette Davis and Deborah Davis, Respondents (FINRA Arbitration 13-02329, September 4, 2015).

Respondents generally denied the allegations.

We're Not Participating

On January 30, 2014, and July 10, 2014, Claimant Sabb's nephews and niece, Respondents Jordan Davis, Austin Davis and Colette Davis, notified FINRA that they were not FINRA members or associated persons and would not voluntarily submit to arbitration, and would not be filing an Answer. As a lawyer, I understand that tactic and would generally recommend the same course to clients in a similar position.

On Second Thought

Although the nephews and niece noted their intentions not to participate in the Arbitration, on July 30, 2015, they filed a Motion to Postpone, stating that they would like to participate in the expungement hearing in order to object to Claimant's expungement request. Claimant objected to the motion. The sole FINRA Arbitrator hearing the matter denied the motion.

On Third Thought

The FINRA Arbitration Decision notes that the nieces and nephews actually filed an Answer around August 7, 2015, and that Respondent Deborah Davis did the same around September 3, 2015.

You're Out, Then In, And Now Bound

The FINRA Arbitrator noted the following in the Decision:

Respondents Jordan Davis, Austin Davis and Colette Davis did not file with FINRA Dispute Resolution property executed Submission Agreements, but having answered the claim, appeared and testified at the hearing, they are bound by the determination of the Arbitrator on all issues submitted.


During the August 19, 2015, expungement hearing, the nephews and niece appeared pro se. Following the hearing, the Arbitrator recommended the expungement of the matter from Claimant Sabb's CRD and offered this rationale:

[T]he compaint [sic] letters, which led to the CRD entries at issue, were submitted by Respondents Jordan Davis, Colette Davis and Austin Davis and dated April 4, 2013, and Respondents Jordan Davis, Colette Davis and Austin Davis each testified that, though they signed the letters, they did not compose them and did not realize the damage they could do. When they realized the seriousness of the charges made in the letter, they sent a second letter, dated April 22, 2013, attempting to "rescind" the first letter and stating that their intent was only to request information about their accounts. Colette Davis testified that the letters, composed by a third party, were the product of long-standing family animosities and distrust. Jordan, Colette and Austin Davis each testified that they had no evidence of fraud, misappropriation of funds, or breach of fiduciary duty by Claimant.

Based on this testimony and the absence of any evidence indicating fraud, misappropriation or comingling [sic] of funds, and testimony of Claimant's significant gratuitous financial generosity to Respondents, reinforcing the improbability of such occurrence, I find that the allegations made by Respondents are false and were made without basis, and therefore this expungement recommendation is based on the defamatory nature of the information in the CRD system.

Bill Singer's Comment

Nothing like a little long-standing family animosity and distrust, right?

Claimant Sabb sets up and funds three custodian accounts for her nephews and niece. Thereafter, the three family members send a complaint letter to Claimant's employer alleging that she had engaged in fraud, misappropriation or commingling of funds -- except, well, you know, those three family members subsequently admit that the didn't compose the letters but only signed them and didn't realize how much career damage their allegations would cause their aunt.  In fact, umm, the only reason that those letters was sent was to "request information about their accounts." Sure, that makes sense. In order to get account information you first have to accuse your stockbroker of misconduct and possible criminal activity.

The nephews and niece sent nastygrams to Wells Fargo about their aunt, alleging that Claimant had engaged in misconduct attendant to the mishandling of the three custodian accounts that the aunt set up and funded. Okay, it's possible that the aunt could have done something wrong -- I'm not going to deny that possibility. On the other hand, "could have" aside, the FINRA Arbitrator found no evidence of any wrongdoing and deemed the allegations defamatory. That's dispositive enough for me.