A former UBS rep sued his former UBS investment adviser brokerage firm. Also, the former rep sued UBS Bank. The Bank didn't file an Answer or appear in the proceedings, and the arbitrators declined to make any determination against the Bank. When it came time for the former UBS rep to pay the arbitration Award rendered against him, FINRA pointed a finger at his wife's finances when he argued that he had an inability to pay the arbitration award. Depending on your view, that's an odd consistency or inconsistency.
2017 FINRA Arbitration
Motherway v. UBS
In a FINRA Arbitration Statement of Claim filed in October 2017, associated person Claimant Motherway asserted violation of the Fair Credit Reporting Act; violation of the Gramm-Leach-Bliley Act; prima facie tort; intentional infliction of emotional distress; breach of contract; breach of implied covenant of good faith and fair dealing; negligence; invasion of privacy; public disclosure of private facts; interference with business relations; and defamation. Additionally, Claimant Motherway sought the expungement of the Reason for Termination on his Form U5.
Claimant Motherway sought $12 million in compensatory damages, punitive damages, costs, and fees; and, at the hearing, he requested $80,153.87 in legal expenses; $77,765.87 in legal fees; and $2,250.00 in expenses.
Respondent UBS Bank USA did not submit an Answer. Respondent UBS Financial Services, Inc. generally denied the allegations and asserted affirmative defenses.
UBS v. Motherway
In a FINRA Arbitration Statement of Claim filed in October 2017, FINRA member firm UBS Financial Services, Inc. asserted breach of promissory note. Claimant UBS sought $1,012,729.65 in compensatory damages, interest, costs, and fees. Respondent Motherway generally denied the allegations, asserted affirmative defenses, and counterclaimed citing the same assertions noted in his FINRA arbitration case against Respondent UBS.
FINRA Arbitrations Consolidated
The FINRA Arbitration Panel consolidated the two cases above:
In the Matter of the Arbitration Between Daniel Paul Motherway, Claimant, v. UBS Financial Services, Inc. and UBS Bank USA, Respondents (FINRA Arbitration Award 17-02799)
In the Matter of the Arbitration Between UBS Financial Services, Inc., Claimant, v. Daniel Paul Motherway, Respondent (FINRA Arbitration Award 17-02773 / January 7, 2020)
2020 FINRA Arbitration Award
On January 7, 2020, the FINRA Arbitration Panel found Motherway liable and ordered him to pay to UBS:
Also, the Panel recommended the expungement of Motherway's Form U5 based upon its defamatory nature. The Panel recommended that the Termination Explanation be changed to "termination for providing conflicting and misleading information in connection with the firm’s inquiry into a non-securities related matter," and that the Reason for Termination be changed to "Other." Note this disclaimer in the Award:
Respondent UBS Bank USA is not a member or associated person of FINRA and did not voluntarily submit to arbitration. Therefore, the Panel made no determination with respect to Claimant’s claims against Respondent UBS Bank USA.
2020 FINRA Suspension
On February 7, 2020, FINRA served Motherway with a Notice of Suspension citing his failure to honor within 30 days the above FINRA Arbitration Award in favor of UBS. In response, Motherway (acting pro se) requested a hearing before FINRA's Office of Hearing Officers ("OHO") FINRA Department of Enforcement, Complainant, v. Daniel Paul Motherway, Respondent (FINRA Office of Hearing Officers Expedited Decision; Exp. Proc. No. ARB2000006 / June 30, 2020)
SIDE BAR: As of March 27, 2023, online FINRA BrokerCheck records disclose that Daniel Patrick Motherway was first registered in 2000, and he ceased being registered around July 2019.
The OHO Decision noted in part that [Ed: footnotes omitted]:
A respondent may assert certain limited defenses for failure to pay an award in an expedited proceeding under FINRA Rule 9554. These include (1) the award has been paid in full; (2) the parties have agreed to settle the action, and the respondent is not in default of the terms of the settlement agreement; (3) the award has been vacated by a court; (4) a motion to vacate or modify the award is pending in a court of competent jurisdiction; and (5) the respondent has a bankruptcy petition pending in U.S. Bankruptcy Court, or a U.S. Bankruptcy Court has discharged the award. In an arbitration not involving public customers, a respondent may also assert a bona fide inability to pay the arbitration award.
at Page 3 of the OHO Decision
Inability to Pay
In furtherance of his "inability to pay" defense, on March 8, 2020, Motherway submitted to FINRA a Statement of Financial Condition ("SFC") and supporting documents. In part, his financial condition demonstrated:
household assets that exceeded liabilities, exclusive of the Award, by $956,181.That included more than $140,000 in cash, more than $910,000 in retirement savings, nearly $490,000 in real estate, and about $60,000 in automobiles.In addition, he listed more than $6,500 in monthly household income, net of expenses, and estimated that the household income for 2019 was slightly more than $400,000.
at Pages 4 - 5 of the OHO Decision
Notwithstanding his disclosed household assets exceeded his liabilities by nearly $1 million, Motherway argued that:
he has not been employed since July 2019, despite his best efforts to find employment both inside and outside the financial services industry. While he has nearly $20,000 in a personal account at UBS, he testified that UBS froze that account. As a result, Motherway argued, he has zero assets to his name, and no income, while he is responsible for over $1 million in liabilities, largely from credit card debt, the Award, and various arbitration fees. Without any assets, Motherway testified, he is unable to obtain a secured loan.
“The Award is against Daniel Motherway,” Motherway argued at the hearing, “not Daniel Motherway and wife.” His wife therefore “has no legal obligation” and is “under no legal compulsion” to “tap into her assets to pay [his] liability,” Motherway insisted. As a result, he asserted, her assets and income should not be considered when determining whether he has an ability to pay a meaningful portion of the award.
at Page 5 of the OHO Decision
What His Wife Owns
In a blunt, direct, and dismissive manner, the OHO Panel admonished Motherway as follows [Ed: footnote omitted]:
[H]e lives in the house that his wife owns. He drives a car she owns, and which was purchased for almost $50,000 in October 2019. He filed his 2018 federal income and state tax returns jointly with his wife. She regularly transferred money to his checking account. Between October 7, 2019 and January 13, 2020, for example, she transferred at least $13,150 to his checking account so that he could pay his bills and cover overdraft charges. This occurred even while Motherway was employed in the brokerage industry, suggesting that he and his wife regularly commingled assets.
In addition, while his arbitration was pending, Motherway divested himself of a substantial asset—his ownership interest in his house—to his wife, for essentially nothing. UBS filed its Statement of Claim, instituting an arbitration against Motherway and seeking more than a millions dollars in damages from him for breach of a promissory note, on October 16, 2017. Less than a month later, Motherway and his wife transferred a house in New Jersey that they owned jointly to his wife alone, so that she became the sole owner. As consideration for the transfer, his wife paid $10 (to both Motherway and herself).
Motherway’s wife sold the New Jersey house in July 2019 for $818,000. At closing, she was paid $197,840 in cash, the profit from the sale. Two days after selling their house, his wife used that profit to purchase another home, in Georgia, for $544,955, with a down-payment of $200,000. Motherway was not listed in the settlement documents as the purchaser for that house, and he testified that he has no ownership interest in the house. Indeed, he claimed that he did not participate at all in the sale of the New Jersey house or the purchase of the Georgia house. Motherway argued that his house therefore should not be considered as an asset in deciding whether he has an ability to pay the Award. Yet this argument ignores how his wife was able to use his valuable interest in the house they jointly owned in New Jersey to fund the purchase of the house in Georgia, in which they now live. Motherway failed to prove that his family home should not be considered as an asset in assessing his ability to pay the Award.
at Pages 6 -7 of the OHO Decision
Pursuant to Article VI, Section 3 of FINRA’s By-Laws and Rule 9559(n), the OHO Panel suspended Motheway from associating with any FINRA member in any capacity, and the suspension continues until Motherway provides documentary evidence to FINRA showing that (1) the Award has been paid in full; (2) he and the Claimant agreed to settle the matter (and he is in compliance with the settlement terms); or (3) he has a petition pending in a United States Bankruptcy Court, or the debt has been discharged by a United States Bankruptcy Court. According to the heading "Individuals Suspended for Failure to Comply with an Arbitration Award or Related Settlement or an Order of Restitution or Settlement Providing for Restitution Pursuant to FINRA Rule Series 9554 / (The date the suspension began is listed after the entry. If the suspension has been lifted, the date follows the suspension date.) (Disciplinary and Other FINRA Actions / August 2020 at Page 26)
Daniel Paul Motherway (CRD #2680522)
(June 30, 2020)
FINRA Case #20200655490/ARB200006
2023 SEC Opinion
On July 29, 2020, Motherway, representing himself pro se, appealed FINRA's suspension to the SEC. In the Matter of the Application of Daniel Paul Motherway For Review of Action Taken by FINRA (SEC Opinion, '34 Act Rel. No. 97180; Admin. Proc. File No. 3-19897 / March 21, 2023)
On appeal, the SEC framed the matter before it as follows [Ed: footnotes omitted]:
Motherway’s sole contention is that the Hearing Officer erred in finding that Motherway “had sufficient assets and income available to him to make a meaningful payment to UBS” and failed to establish that he had a bona fide inability to pay. “To prevail on an inability-to-pay defense a respondent must demonstrate that he is unable to make some meaningful payment toward the award from available assets or income.” Motherway, as the party claiming an inability to pay, bears the burden of proving the defense “[b]ecause the scope of his assets is peculiarly within [his] knowledge.”
at Page 5 of the SEC Opinion
After largely parroting and adopting the findings and rationale in FINRA's OHO Decision, the SEC states in pertinent part that:
[B]ased on the information he was required to provide in response to the SFC, Motherway knew his wife’s finances would be considered in connection with his asserted inability-to-pay defense. It was, therefore, his responsibility to call his wife or any other witnesses necessary to establish such defense. And Motherway does not claim that he was prevented from calling his wife (or anyone else) as a witness or that he was otherwise prevented from introducing evidence regarding his asserted inability to pay. We therefore conclude that substantial evidence supports FINRA’s determination that Motherway failed to prove that “his substantial household resources were truly unavailable to him to make a meaningful payment to the Award” and that the specific grounds on which FINRA based Motherway’s indefinite suspension and the denial of his inability-to-pay defense exist in fact.
at Page 7 of the SEC Opinion
In dismissing Motherway's application, the SEC summarizes its rationale [Ed: footnotes omitted]
[U]nder the circumstances, permitting Motherway to remain in the industry without paying the award, or meeting his burden to demonstrate a bona fide inability to pay the award would not only undermine the arbitration process but would also expose investors to an individual who has refused to accept the results of that process by failing to make any effort, meaningful or otherwise, towards paying the amounts he was found to owe, despite having agreed to do so when becoming a FINRA associated person.
at Pages 8 - 9 of the SEC Opinion
Bill Singer's Comment
To my jaundiced eye, this whole mess seems largely about what's likely a seven-figure employee forgivable loan ("EFL") or some "promissory note" variant on that theme. Reduced to typical basics, Motherway got a loan, and a promissory note likely set out his repayment obligation if/when his registration with UBS ended. Upon the termination of Motherway's registration, UBS made demand for payment of a balance due. He offered his explanations to his former employer as to why he was excused from repayment. UBS didn't buy the explanations. Motherway sued UBS Financial and UBS Bank. UBS Financial sued Motherway. A FINRA Arbitration Panel heard the disputes and ordered Motherway to repay what he owed BUT (oddly) the Panel also granted him an expungement based upon UBS defamation. So . . . at the end of the day, Motherway needed to write out a check to UBS, and UBS needed to revise his Form U5. Except, Motherway wouldn't or couldn't write out the check as ordered by the FINRA Arbitration Panel.
At this point, FINRA-the-arbitration-forum transforms itself into FINRA-the-industry-regulator/FINRA-the-industry-collection-agent; and in that new manifestation, FINRA comes after Motherway for failing to timely pay an Award ordered by FINRA's arbitration forum. That's far too much overlap and conflict for me.
I don't think FINRA should be in the business of generating fees by operating an arbitration forum; and then double-dip on that arbitration money-making by imposing regulatory fines and suspensions upon those who don't timely pay arbitration awards. Given the proliferation of private arbitration forums, I believe that FINRA member firms, their employees, and their customers would be better directed to one of the other forums. Public customers are disadvantaged when their choice of an arbitration forum is that of an industry-run FINRA version. Similarly, the industry's associated persons are disadvantaged when forced to arbitrate before a forum run by FINRA, which is an organization at which only employer/member-firms are enfranchised with a vote. Moreover, as I have long advocated, I prefer giving all those market participants the option of litigating in a state or federal court
Motherway gets dicey because UBS' former registered rep was forced under FINRA rules to litigate his claims against UBS at FINRA's arbitration forum. I say "dicey" because FINRA selectively picks and chooses how its rules and protocols are applied against its member firms and those members' associated persons. For example:
Above, we got one "both" and three "solely." As in where the hell did Motherway's case against UBS Bank USA go? Motherway's claims against UBS Bank USA evaporated because not only did the Bank refuse to submit an Answer to his Statement of Claim or otherwise participate in the hearings, but the FINRA Arbitration Panel deemed the Bank as not subject to its jurisdiction because the Bank was not a FINRA member firm or a FINRA associated person. Notably, Motherway's wife was also not a FINRA member firm or a FINRA associated person.
All of which raises an interesting question -- if not a dilemma. The FINRA arbitrators made no determinations involving UBS Bank USA because it wasn't a FINRA associated person or member firm. On the other hand, the Bank was named by Motherway as a Respondent. Further, the Bank did not submit an Answer and did not appear. In looking askance at the Bank's role (if any) in Motherway's allegations, the FINRA arbitrators apparently afforded a great deal of weight to the Bank's non-associated-person-non-member-firm status. The FINRA Arbitration Panel considered the Bank's status and declined to make any rulings pertaining to the Bank; however, the FINRA OHO Panel considered Motherway's wife's status and proceeded to make rulings incorporating her financial status as it impacted Respondent Motherway. Interesting how FINRA-the-regulator is in high dudgeon over Motherway's assertion that the issue of his financial inability to pay should be determined solely by "his" inability to pay and that the pronoun "his" ought not extend to "her" (as in his wife).
If you accept the OHO Panel's rationale, then you have the justification for taking into consideration Motherway's wife's finances. If the OHO Decision isn't enough for you, then the SEC Opinion's reiteration of the same rationale may tip the scales. I'm not going to argue against either the OHO's or the SEC's rationales because I'm just not that sympathetic to Motherway's arguments (based upon what I know from the decisions). It would seem fair to consider a husband-and-wife's financial wherewithal when determining the husband's "financial inability to pay." What's fair, however, don't always equate with what's legal or what's the current jurisprudence:
FINRA Doesn't Bank On It When It Comes To Wife Of Former UBS Employee (BrokeAndBroker.com Blog)
Ronald H. Filler Institute for Financial Services Law / SPECIAL PROGRAM ON FINANCIAL SERVICES LAW (TUESDAY, APRIL 11, 2023)
Financial Professionals Coalition, Ltd. JOIN TODAY -- FREE MEMBERSHIP (BrokeAndBroker.com Blog)
Financial Professionals Coalition, Ltd Endorses Ronald Filler, Esq's FINRA Petition for Direct Registration Exam (BrokeAndBroker.com Blog)
Queens Man Pleads Guilty to Real Estate Fraud Scheme (DOJ Release)
Foreign National Sentenced for Victimizing U.S. Persons Through Cyber-Enabled Fraud Schemes (DOJ Release)
Queens Investment Advisor Indicted for Multi-Million Dollar Securities Fraud Scheme / Victim Gave the Defendant More than $4 Million to Purchase Securities Which He Used to Pay Personal Expenses and for Day Trading (DOJ Release)
SEC Obtains Emergency Relief Against Long Island Investment Adviser and Firm Charged with Fraud (SEC Release)
SEC Charges Texas Resident with Orchestrating Three Separate Schemes Defrauding Investors Out of Over $8.4 Million (SEC Release)
SEC Denies Whistleblower Award to Claimant
Order Determining Whistleblower Award Claim
SEC Awards Whistleblower Award to Claimants 1, 2, and 4 But Denies Award to Claimant 3
Order Determining Whistleblower Award Claim
CFTC Charges Binance and Its Founder, Changpeng Zhao, with Willful Evasion of Federal Law and Operating an Illegal Digital Asset Derivatives Exchange (CFTC Release)
FINRA Sanction Newbridge Securities Corporation for Alternative Mutual Fund Supervision
In the Matter of Newbridge Securities Corporation, Respondent (FINRA AWC)
FINRA Sanction NatAlliance Securities and Supervisor for Traders' Bond Marks
In the Matter of NatAlliance Securities, LLC and Jason Adams, Respondents (FINRA AWC)