In today's BrokeAndBroker.com Blog we summon up the ghost of the once venerable brokerage firm of Dean Witter. Next, we deal with the spirit of a 1996 estate and a beneficiary's apparent unhappiness with how his inheritance was invested. Finally, we deal with the zombie-like customer service that was sort of there but not really. In the end, tt's a long, long story replete with a pro se public customer Claimant and questions about whether his mother was capable of handling the subject brokerage account.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2016, Claimants asserted breaches of fiduciary duty and contract, fraud, manipulation, misrepresentation, omission of facts, suitability, unauthorized trading, errors-charges, exchanges, failure to supervise, negligence, and execution error. Claimants sought $8,612.50 in compensatory damages plus $4,597.01 in other relief and punitive damages and attorneys' fees. In the Matter of the FINRA Arbitration Between Mark Donofrio, Estate of Harry Stebbing, and Priscilla Donofrio, Claimants, v. Morgan Stanley Smith Barney, LLC, Steven G. Brettler and Patrick F. Henry, Respondents (FINRA Arbitration 16-02732, October 19, 2018).
Claimant Mark Donofrio represented himself pro se and also appeared on behalf of the Estate and Priscilla Donofrio.
Respondents moved to dismiss, which was opposed by Claimants, and the sole FINRA Arbitrator denied the motion.
In the Statement of Answer, Respondent Patrick F. Henry requested expungement of his Central Registration Depository record ("CRD").
The Arbitrator's Report
At this point in many BrokeAndBroker.com Blog articles covering FINRA arbitrations, I normally attempt to summarize a given case and explain the litigation in my own unique style, which, if I say so myself (and obviously, that's what I'm going to proceed to do) is incredibly pithy yet sarcastic but with a deft touch of breathtaking erudition. . . and, sure, you're right, all with a great display of modesty. Sadly, in today's article I am going to disappoint many of my readers because, try as I might, there is no way that I could summarize the brilliant and mesmerizing "ARBITRATOR'S REPORT" written by sole FINRA Arbitrator Laura A. Kaster. As such, permit me to step back and leave the stage for Arbitrator Kaster's her much-deserved soliloquy:
This matter involves an estate account held by Morgan
Stanley and its predecessor, Dean Witter. The named owner of the account was the
Estate of Harry M. Stebbing, Priscilla Higgins Donofrio, Executrix. Mr. Stebbing died in
1996 leaving his estate to his grandnephew, the son of Priscilla Donofrio, Mark
Donofrio. The Arbitrator has allowed Mr. Donofrio enormous leeway to obtain
information and to make repeated filings in this matter in order to assure a fair hearing.
Mr. Donofrio complains of the investments selected for the account and the
management of the account starting in 1996, believing it should have been treated as a
custodial account on his behalf as he was the sole beneficiary of the estate and was a minor in 1996. Mr. Donofrio claims that the statute of limitations should be tolled in this
matter because he did not learn of the account until 2016. That argument is
unpersuasive. Mrs. Priscilla Donofrio was the account holder. She received and had in
her files many of the account statements that Mark Donofrio provided in this arbitration.
Included in those materials was a confirmation of the purchase of the tech fund at issue
and many years of statements reflecting that it was still held. Only Mrs. Donofrio had
discretion to invest the proceeds of this account. There is no indication that anyone but
she decided to make this investment. It is Priscilla Donofrio who owed a fiduciary duty
to the estate and its beneficiary as the Executrix. At any time, she could have altered
the investment, transferred the investment, or distributed the account to Mark Donofrio.
Mark Donofrio argues, without any evidentiary support, that his mother was not capable
of managing the account. However, the Respondents never had notice of that
allegation until Mr. Donofrio himself raised it the same year of this proceeding.
Moreover, Mrs. Donofrio cooperated with Mark Donofrio in this proceeding and agreed
that the account should be transferred to Mark Donofrio.
In addition, Mark Donofrio attained majority no later than 2001 when he was 21 years of
age. By March 2, 2010, Mark Donofrio had a durable power of attorney for his mother.
If he believed his mother needed assistance in managing her affairs, he could have
obtained her papers (including the account records he now relies upon) from her or
sought court relief. The six-year statute of limitations runs from at least March 2, 2010
and bars Mr. Donofrio's monetary damages claims in toto. The Respondents were not
obligated to retain records for this long period of time and they are disadvantaged by
this filing. This is precisely the reason for a statute of limitations.
The Respondents are not without fault in handling Mark Donofrio's requests or account.
They should have asked him and his mother in writing to have his mother direct that the
account be transferred to him or provided him a clear and specific way to get the
account transferred instead of providing confusing and unhelpful responses.
As stated above in the Award section, Respondents are ordered to provide a final
account balance to Claimants and to transfer the proceeds of the account to Claimant
Mark Donofrio no later than 30 days from the date of this award. In addition,
Respondents are ordered to refund annual account fees and low balance fees dating
from January 1, 2016 in the amount of $690.00 no later than 30 days from the date of
The FINRA Arbitrator ordered Respondents to:
refund $690 in annual account fees and low balance fees
dating from January 1, 2016 within 30 days; and
provide a final account balance to Claimants and to
transfer the account proceeds to Claimant Mark Donofrio within 30 days.
The FINRA Arbitrator conducted an expungement hearing at which Claimants did not participate but did contest the requested relief. The Arbitrator recommended expungement of Respondet Henry's CRD based upon a FINRA Rule 2080 finding that the claim, allegation, or information is factually impossible or clearly erroneous, and false. The Arbitrator offered this rationale:
This was not a discretionary account. The evidence indicated that the executrix
of this estate authorized the investment in question and received repeated
information over a number of years but took no action. There was no authority to
alter the account until the beneficiary, who had long attained the age of majority
and then a power of attorney, attempted to intervene. However, the beneficiary
then refused, or was unable to have his mother properly direct the account.
There is no indication that Mr. Henry made any investment decisions or gave any
investment advice, nor was he obligated to do so.
Bill Singer's Comment
Compliments to sole FINRA Arbitrator Laura A. Kaster for a monumental job in explaining what went on in this case and offering a compelling rationale for her disposition of the matter.
Grand As In Not Great or Great As In Not Grand or what?
Reduced to its essence, the arbitration involves Harry M. Stebbing's estate, which came into being over 22 years ago in 1996; and for reasons not detailed, the deceased left his entire estate to his grandnephew, Claimant Mark Donofrio. Not his nephew, mind you, but his grandnephew, which, okay, I'll be honest, I never, ever heard that term before, which is not to say that there isn't such a thing as a grandnephew or grandniece but, still, that's like, what, your nephew's nephew or your nephew's son? More to the point, just what the hell is the difference between a grandnephew and a greatnephew? Enjoy this somewhat creepy video explanation:
A Matter of Discretion and A Matter of Time
Claimant Mark Donofrio's mother, Claimant Priscilla Donofrio, was the Estate account-holder and all the pertinent account documents and statements over the relevant years were sent to her. As the FINRA Arbitrator admonishes:
Only Mrs. Donofrio had discretion to invest the proceeds of this account. There is no indication that anyone but she decided to make this investment. It is Priscilla Donofrio who owed a fiduciary duty to the estate and its beneficiary as the Executrix. At any time, she could have altered the investment, transferred the investment, or distributed the account to Mark Donofrio.
Claimant Mark Donofrio argued that at some point in time his mom was incapable of managing the account, but that development was apparently never timely disclosed to the Respondents -- so there was an issue of whether the Respondents were on notice of the mother's alleged limitations. Consequently, that issue may well have come down to the classic defense of "we didn't know and you didn't tell us."
An equally classic defense that may have been raised in some form was the "where the hell where you?" By 2001, Claimant Mark Donofrio had turned 21 years of age, and, presumably, as an adult, he may well have been able to demand that his mother surrender her control of the Estate account to him or someone else. Frankly, I'm puzzled by the mechanics of what happened after the account was established. Was the account in the name of the Estate and was there ever a formal probate? Were the estate assets ever transferred to a trust account in the name of Mark Donofrio? How or why did the mother apparently continue to manage the account after her son obtained the age of majority?
By March 2010, Claimant Mark Donofrio had a durable power of attorney ("POA") for his mother. That POA may well have vested him with the power to make whatever decisions he desired for the investments in the subject account. As such, even if we only first start the clock with the March 2010 POA, the six-year statute of limitations would have ended in March 2016, but the FINRA Arbitration Statement of Claim was only first filed in September 2016.
Respondents Not Without Fault
The FINRA Arbitrator is not without sympathy for Claimant Mark Donofrio and she concedes that before Mark's frustration boiled over into the 2016 arbitration, Dean Witter/Morgan Stanley's customer service wasn't quite up to snuff:
They should have asked him and his mother in writing to have his mother direct that the account be transferred to him or provided him a clear and specific way to get the account transferred instead of providing confusing and unhelpful responses.