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FINRA Panel: Morgan Stanley to Pay Woman Removed as Client's Beneficiary

A Mississippi woman claimed Morgan Stanley erred when accepting her removal as a beneficiary to her dementia-stricken, de facto mother's estate—as well as ignoring her challenges as they distributed the deceased woman's funds.

A FINRA arbitration panel demanded Morgan Stanley pay more than $150,000 to a Mississippi woman who claimed the brokerage firm wrongfully let her be removed as the beneficiary of her de facto mother's investment accounts, a change made while the older woman was suffering from dementia. 

Though the panel ruled last week, Deborah Broadway originally filed a statement of claim in May 2022, calling for arbitration against Morgan Stanley and John McLarty, a former broker for the firm based in Ridgeland, Miss. 

In the claim, Broadway argued that she was, “for all practical purposes,” the adopted daughter of Frankie Hayes Warren. Broadway had been taken in by Warren and her husband in 1969, when she was 15. 

The Warrens didn’t have biological children but purportedly saw Broadway as their daughter—though she was never formally adopted. Warren listed Broadway as “her adopted daughter” on Morgan Stanley beneficiary designation forms. 

After Warren’s husband died in 2014, his Morgan Stanley accounts were transferred to her, and in 2015 Warren designated Broadway as the “100% transfer-on-death beneficiary” to the accounts.

Soon afterward, Warren started experiencing memory problems. By June 2017, they’d grown worse, and in 2018, she’d been diagnosed with “an advanced form of dementia,” according to the claim. 

Warren and her attorney decided Warren should grant power of attorney to Broadway. When Broadway brought the change to McLarty, Warren's Morgan Stanley broker, he allegedly claimed it was forged and refused to accept it.

In the following months, McLarty allegedly urged an ailing Warren to change the beneficiary designation. He asked a friend of Warren's to help her fill out new forms, according to the complaint. By February, Broadway had been essentially cut out, according to the complaint.

Warren reportedly changed her power of attorney to Dr. Billy Walker, who, Broadway claimed, knew of Warren’s dementia. McLarty, also likely aware of the dementia diagnosis, and Morgan Stanley allegedly accepted the new document “without question,” according to the claim.

“McLarty accepted these changes even though he knew—or reasonably should have known—that (Warren) lacked the capacity to make them,” the claim read.

Warren died in July 2021; Broadway’s attorney at the time soon reached out to Morgan Stanley, alerting them that Broadway was claiming an interest as a true beneficiary and would challenge the changes that cut her out. Despite this, Morgan Stanley distributed the funds.

“Debbie—the person who (in her right mind) Frankie considered her closest friend and family member—got nothing at all,” the claim read.

Though Broadway claimed Morgan Stanley should have known not to accept the changes to the beneficiary status given her condition, the FINRA arbitration panel found in Broadway’s favor without having to rule on that factor, according to Grafton Bragg, a Mississippi-based attorney who represented Broadway. 

Instead, the panel found that Morgan Stanley erred when it got the notice that Broadway would challenge the changes and went ahead with distributions to the "new" beneficiaries anyway.

“Don’t say ‘we know best, and we’re going to pay who we think the proper beneficiaries are,’” Bragg said. “And that’s what Morgan Stanley did. They basically ignored my client’s claim.”

Bragg said the firm should not have become involved, and let the potential beneficiaries challenge each other in court.

“The panel found my client was at least a partial true beneficiary, and since Morgan Stanley released all the funds to everyone else, they ended up having to pay my client,” he said. “They had to pay twice.”

Morgan Stanley’s $153,489 in compensatory damages is below what Broadway requested, which was $385,000, or the full value of Warren’s accounts that were dispersed, plus interest.

“The burden shouldn’t be on my client to chase down individuals paid in error who may not even have the funds anymore,” Bragg said.

McLarty was with Morgan Stanley from 2009 through October 2022, and is not currently registered, according to his BrokerCheck profile; he could not be reached for comment, and Morgan Stanley did not return a request for comment as of publication.

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