Our mother suffers greatly from dementia and has some money. She is being played by her broker Robert
Zorich at Morgan Stanley and his legal referral of choice, Ladd Leavens. My sister and I don’t have the money or
resources to stop their maladministration of our mother’s estate. All her life, my sister has been a powerful
advocate for the disenfranchised. The
following is her rebuttal letter to Leslie Berg at the Washington State Bar
Association proving Ladd Leavens is managing our mother’s money after Ladd’s
denial of culpability.
I am grateful for my sister’s powerful advocacy skills. My life would not be going as well as it is
without her intervention 15 years ago getting me into a rehab facility. More nearly, I would already have died
without her help.
4 May 2014
Ms. Berg:
I have read Ladd
Leavens’ Declaration and wish to respond.
It is true that I
have no proof of client referrals. However, Beverly Xyz was referred to Davis
Wright Tremaine by Robert Zorich, the stockbroker at Morgan Stanley. It is
reasonable to assume that my mother was not the first referral to Davis Wright
Tremaine by Morgan Stanley, nor the last. My understanding is that lawyers need
new clients,
Mr Leavens has not
charged Beverly Xyz for his time since the settlement of the guardian petition
matter that Kevin Xyz, my brother, filed. Why would Mr Leavens do that? Beverly
Xyz is far from improverished. I reckon Mr Leavens is doing that to keep
Beverly Xyz’ investment account with Morgan Stanley as payback for the client
referral. Beverly told me that she paid about $28 thousand dollars to Davis
Wright Tremaine for representation on the guardianship matter.
Mr Leavens has made
several false statements in his affidavit. I think that matter of whether
client referrals exist can be settled by your obtaining a report from Davis
Wright Tremaine. I would expect the law firm records the client source in the
client record of its time billing software.
It would be a simple matter for the manager of the time billing
application to provide you with a summary report on Davis Wright Tremaine
clients (just the count, not the names) referred by Morgan Stanley.
Beverly Xyz has
advanced dementia. If necessary, I can provide two written reports from
psychiatrists who examined and diagnosed her.
The concern by my brother and myself is that Beverly not be taken
advantage of financially or otherwise. She refuses to acknowledge that she has
dementia.
Robert Zorich at
Morgan Stanley has been churning Beverly’s investment account for years, which
generates commissions for Mr Zorich and Morgan Stanley. Additionally his
investments have either lost money for Beverly, or caused her to have a return
significantly below market rate. As I wrote in my complaint, Beverly would have
had $165 thousand dollars more in 2013 had her money been invested in a no-load
S&P 500 index fund, rather than Mr Zorich’s buy and selling shares.
It is not merely my
opinion about Mr Zorich’ activities. My brother engage a financial expert
witness as part of the guardianship petition who came to the same conclusion
after reviewing several years’ statements.
Ladd Leavens’ statement
in paragraph 5 that it was difficult to find anyone who was willing to assume
the role of watching over Beverly’s affairs is false. Kevin Xyz’ attorney had
communicated with a guardianship service, I think Guardianship Service of
Seattle, and it was willing to fill that role.
Ladd Leavens
statement that he did not agree to take over Beverly’s financial affairs is
false. Mr Leavens took over. As evidence, I am attaching several email chains
between myself and Mr Leavens.
In 2013, a Sunrise
employee (Sunrise is the facility where Beverly lives) forged a signature on
Beverly’s checking account, and stole $1500. Below are paragraphs written by Mr
Leavens.
“I am aware of
the forged check by the Sunrise employee. The employee has been fired. We have
made a claim to Bank of America for reimbursement of a forged check. As a
consequence of the forgery, Bank of America has closed Beverly's account, and
we opened a new one. I am on the account as her attorney-in-fact.
(Not as an owner). I spent the day with Beverly Wednesday, accomplishing
this. We also moved $65,000 from the old checking account into two
certificates of deposit. I am in the process of resuming the $4000 per
month transfers from Morgan Stanley. I also need to change the automatic
deposits of pension and Social Security Payments to her new account.
As to taking
over paying her bills, that will be a slower process. I think the
best I will be able to do for the time being is monitor closely. I
should have Internet access to her account shortly. That will make things
easier. I think that for the time being that will be sufficient. She is
pretty good about getting her bills paid. “
It is clear that Mr
Leavens is managing Beverly’s financial affairs. He took Beverly to the bank.
The pronoun “we” paints a false picture. Beverly is cognitively impaired to the
point of being unable to make logical decisions (what psychiatrists term lack
of executive functioning). Again, the psychiatrists reports are available is
this point is in dispute.
Beverly stayed with
me for three weeks in August 2013. I was surprised at the extent of her
impairment. One incident is illustrative.
She stayed a week longer than originally planned and thus needed to change the
date of her flight. I sat with her, rang United Airlines, and put the agent on
speakerphone. My mother, an extremely experienced traveler (my father was a Pan
Am pilot so my mother flew frequently as it was free) but was unable to convey
to the agent the change required. I explained, and then the agent requested a
credit card for payment of the fee. My mother replied that she did not have a
credit card. I told Beverly that indeed she did, that was what she used to pay
for the plane ticket. So Beverly took out her wallet and looked through a
bundle of cards. She then pulled out a company loyalty card and asked if that
would do. I said no. Beverly handed me the bundle of cards. I located her VISA
card and provided the information to the very patient agent. That Beverly would forget that she had a
credit card, and then confuse a loyalty card for a credit card is telling.
Ladd Leavens has
vied with me over Beverly’s financial affairs, and established that he is the decider.
When two months had elapsed without reimbursement of the forged check by Bank
of America, I communicated with Sunrise corporate management. It is my opinion
as the party who hired and supervised the forger, and who gave her the key to
Beverly’s apartment, that Sunrise was responsible and should pay. The
administrator agreed to reimburse Beverly. Then the administrator emailed me,
stating that Ladd Leavens directed them not to reimburse Beverly because he
would seek reimbursement from the Bank of America. There is no other way to
characterize Mr Leavens’ behavior other than as managing Beverly’s financial
affairs.
Beverly does like
Robert Zorich at Morgan Stanley. She tells me that Mr Zorich is doing a good
job investing for her. Her reasons? First, when she rings Morgan Stanley, both
Mr Zorich and his assistant tell her that the stock market and her account are
doing well. Secondly, she receives $4000 a month from Morgan Stanley. I have
explained to Beverly multiple times that the $4000 is merely a transfer of her
funds from her account at Morgan Stanley to her checking account at Bank of
America but Beverly continues to view it as a return on her investment.
Another incident was
in November 2013. Beverly wrote checks to pay her bills but forgot to do so.
Her telephone was then disconnected. Beverly was unable to arrange to have her
telephone bill paid and telephone reconnected without assistance from a staff
member at Sunrise. Beverly also bounced checks, and continues to do so.
I have repeatedly attempted
to persuade Mr Leavens to have Beverly’s investment managed by an independent
financial advisor. Mr Leavens refused. In his 20 June 2012 email, he wrote “I
think it would be a mistake not to keep Mr. Zorich involved in her investing. I
certainly do not perceive that he is biased”.
Beverly needs
someone to look after her financial affairs with the objective of Beverly’s
best interest. She is not capable of
articulating an investment goal. Even so, the churning of her account to
generate commissions meets no prudent person’s goal except for Mr Zorich and
Morgan Stanley.
Since Ladd Leavens
refused to have an independent advisor manage Beverly’s accounts, I then
recommended it be invested in a no-load S&P 500 index fund. Mr Leavens did
not reply to my suggestion. It would mean a loss of over $13 thousand dollars
in annual commissions for Mr Zorich and Morgan Stanley but Beverly would be far
better off financially.
Ladd Leavens states
that the no-load S&P 500 index fund would be “foolish and potentially
disastrous” in a falling market. Mr Leavens cites no authority for this very
strong opinion, nor any qualification of his to make such an assessment. I have
a Masters degree in Business Administration with a concentration in Finance
from the University of Puget Sound, so I have a solid understanding of
investment, although I do not work in that field.
Numerous studies
have proven that a fund manager, such as the role Mr Zorich has with respect to
Beverly’s investment account, cannot outperform the stock market. This is a
fact, whether the stock market trends are negative or positive.
A Random Walk
Down Wall Street: The Time-Tested Strategy for Successful Investing(Tenth
Edition) by Burton G. Malkiel states
that an investor who invested $10,000 in a SPP 500 Index Fund in 1969 would
have a portfolio of $463,000 by 2010 as compared to an investor in the average
actively managed fund whose investment would have grown to $258,000. The
investor in the S&P500 index fund had a return almost 80 times that of the
average actively managed fund investor. The period of 1969 to 2010 includes
both bull and bear markets.
The Little Book
of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock
Market Returns by John Bogle, founder of the Vanguard funds recommends
stock index funds. “Index funds eliminate the risks of individual stocks,
market sectors, and manager selection. Only stock market risk remains.” Mr
Bogle also writes “Yes, after the costs of financial intermediation – all those
brokerage commissions, portfolio transaction costs, and fund operating
expenses; all those investment management fees; all those advertising dollars
and all those marketing schemes; and all those legal costs and custodial fees
that we pay, day after day and year after year – beating the market is
inevitably a game for losers. “
The Elements of
Investing: Easy Lessons for Every Investor (December 2012) by Burton G.
Malkiel and Charles D. Ellis states “The table on the following page shows that
the index fund [S&P500] beats the average active fund by more than a full
percentage point per year, year after year.” The table is for 20 years ending
30 June 2012. The total for the 20 year period is 8.34% return for the S&P
500 Index Fund and 7.0% for the average active equity mutual fund, a difference
of 1.34%. Again, bear markets are in
that 20 year period.
It is clear that
Ladd Leavens’ understanding of stock market investing is incorrect. It is
possible that he obtains his information from Robert Zorich. Mr Zorich, as a
stockbroker, is incentivized by payment of commissions, not by the return on
Beverly’s investment. It is in Mr Zorich’ interest to churn Beverly’s account
so that he earns money for himself and Morgan Stanley. Upton Sinclair is known
for his quote “It is difficult to get a man to understand something, when his
salary depends on his not understanding it.” Robert Zorich’s salary depends on
his not understanding that he cannot outperform the stock market whilst he is
churning Beverly’s investment account.
It was my hope, and
that of Kevin Xyz, that Ladd Leavens would see the need to prudently manage
Beverly’s financial affairs. Mr Leavens has done a poor job of it. The biggest cost to Beverly Is the $165
thousand dollars in investment return that she has forgone because Mr Leavens
insisted that Beverly’s funds continue to be managed by Robert Zorich.
Mr Leavens should be
held to account for his actions.
