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At an IAS Term, Part 76J, of the Supreme Court of the State of New, held in and for the County of Kings, at the Courthouse, at 360 Adams Street, Brooklyn, New York, the 3rd day of June 2011.

PRESENT: Hon. Ellen M. Spodek, J.S.C. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X IN THE MATTER OF THE ANNUAL ACCOUNTINGS OF RAY JONES, ESQ., AS GUARDIAN OF THE PROPERTY OF

INDEX NO. : 092184/1984

JOSEPHINE ROBINSON DECISION AND ORDER

AN INCAPACITATED PERSON. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X

Upon the 2003, 2004 and 2005 accountings filed by suspended guardian of the

property, Ray Jones, Esq., on March 24, 2006; and

Upon the 2006 accounting filed by suspended guardian of the property, Ray

Jones, Esq., on May 22, 2007; and

Upon the amended 2003, 2004, 2005, 2006 and 2007 accountings filed by

suspended guardian of the property, Ray Jones, Esq., on May 30, 2008; and

Upon the 2008 accounting filed by suspended guardian of the property, Ray

Jones, Esq., on May 27, 2009; and

Upon the 2009 accounting filed by suspended guardian of the property, Ray

Jones, Esq., on June 22, 2010; and

Upon the reports of former court examiner, Abraham Spector, Esq., noticed for

settlement on December 17, 2009, approving the annual accountings of Ray Jones,

Esq., for the years 2003 through 2007; and

Upon the compliance order dated April 29, 2010 directing the guardians, court

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examiner and counsel to appear on June 4, 2010 before Hon. Loren Baily-Schiffman;

and

Upon the order dated June 14, 2010 directing the appearance of the guardians,

court examiner, and the surety on June 23, 2010 before this Court; and

Upon the order dated June 24, 2010 suspending Ray Jones, Esq., as guardian of

the property of JOSEPHINE R., appointing Linda Redlisky, Esq., as interim guardian of

JOSEPHINE R.; and

Upon the order dated June 24, 2010 removing Abraham Spector, Esq., as court

examiner and appointing successor court examiner, Seth Coen, Esq.; and

Upon the preliminary report of successor court examiner, Seth, Coen, Esq.,

dated July 30, 2010; and

Upon the response of Ray Jones, Esq., suspended guardian of the property,

dated August 16, 2010; and

Upon the Affirmation in reply of the successor court examiner Seth Coen, Esq.,

and the Pre-trial Memorandum of Law submitted on behalf of Fidelity and Deposit

Company of Maryland dated November 19, 2010; and

Following hearings held on November 22 and 23, and December 22, 2010

wherein Ray Jones, Esq., Seth Coen, Esq., Linda Redlisky, Esq., William Mait, Esq. for

the surety, JOSEPHINE R., Lianne R., Clover Barrett, Esq., Keri Watkins, Miko N.

Simmons, and Ezekiel Barnett appeared, this Court finds as follows:

Background

In 1977, Josephine R. suffered injuries during the delivery of her daughter,

Lianne R. Representatives of Josephine R. commenced a medical malpractice action

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under Kings County Index #013936/1977. By order dated November 9, 1984, the

action was settled as follows:

...defendants shall pay the sum of $6,986.00 monthly to Josephine R. totaling $83,832.00 per annum for the rest of her natural life with incremental increases based on 3% per annum compounded annually. In the event that Josephine R. lives less than 20 years then payment shall continue to Lianne R. until such time as Josephine R. would have lived for 20 years from the date of the first payment hereunder, and at the 21st anniversary of the settlement herein, the sum of ONE MILLION ($1,000,000.00) DOLLARS shall be paid to and for the benefit of Josephine R. or her daughter Lianne R. if she, Josephine R., is not then living; if she is then living, the yearly payments herein with increments shall continue notwithstanding the payment of the said $1,000,000.00.

Following the settlement, a proceeding was commenced on November 21, 1984, for

the appointment of a conservator for Josephine R.

By order dated April 2, 1985, Philip B. Roache, Esq., was appointed conservator

of Josephine R. The conservatorship was permitted to purchase a house for

Josephine R. on October 31, 1985. Following a motion by Mr. Roache to resign, Ray

Jones, Esq., was appointed successor guardian of the property of Josephine R. on

February 13, 2003. Thereafter, Mr. Jones obtained a bond in the amount of

$415,000.00 and obtained his Commission on February 24, 2003. After a lengthy

proceeding settling the final account of the prior guardian, Phillip Roache, Esq., a

decision and order dated April 26, 2007 left the guardianship with a remaining balance

of forty three thousand three hundred eighty four dollars and seventy cents

($43,384.70). The court further ordered an increased bond totaling $1,600,000.00.

Mr. Jones, the successor guardian, filed annual reports for the years 2003

through 2005 on March 24, 2006. Amended accountings for the years 2003 through

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2008 were filed on May 30, 2008. In the amended 2005 accountings, Mr. Jones

recorded the one million dollar ($1,000,000.00) lump sum payment received as income.

In the 2006 annual report, Mr. Jones shows a five hundred twenty five thousand dollar

($525,000.00) decrease in principal in the form of a “First Mortgage Loan Investment” to

Clover Barrett, d/b/a 1295 Sterling Place, LLC. In the 2007 annual report, Mr. Jones

similarly shows a six hundred fifty thousand dollar ($650,000.00) decrease in principal in

the form of a “First Mortgage Loan Investment” to Keri Watkins d/b/a 60 Clifton Place,

LLC.

These reports were unexamined until the court appointed successor court

examiner, Abraham Spector, Esq., on October 17, 2007. Thereafter, Mr. Spector

proceeded to examine Mr. Jones’ accountings and simultaneously settled five separate

reports on notice for December 17, 2009. These reports were actually filed with the

guardianship office on December 28, 2009. Mr. Spector found no significant issues

regarding the 2003, 2004, and 2005 accountings and recommended approval. Even

though the five hundred twenty five thousand dollar ($525,000.00) transaction was

reflected in the 2006 accountings and his report, he also recommended approval. In

his 2007 report, Mr. Spector mentioned the two mortgages related to 1295 Sterling

Place and 64A Clifton Place in Kings County but recommended that the bond remain

unchanged and did not recommend any further court inquiry.

Subsequently, Mr. Jones filed the 2008 accounting on May 27, 2009 and the

2009 accounting on June 22, 2010. Neither accounting has been reviewed by a court

examiner but has been reviewed by this Court for the purposes of determining the

validity of the two mortgages at issue. Although no objections were filed against any of

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the accountings or court examiner’s reports, the Court found that these unusual

transactions required further inquiry.

The Court attempted to resolve the outstanding accounting issues mentioned in

Mr. Spector’s 2007 report and held conferences on June 4, 2010 and June 23, 2010,

wherein Mr. Jones appeared with counsel, Harvey Greenberg, Esq., on both occasions.

Following the June 23rd conference, the Court suspended Mr. Jones as guardian of

the property pursuant to MHL §81.37(a) by order dated June 24, 2010. Linda Redlisky,

Esq. was appointed interim guardian of the property pending resolution of the

accounting issues. In the same order, Mr. Spector was removed as court examiner

and Seth Coen Esq. was appointed in his place as successor court examiner. Mr.

Coen was directed to review the 2003 through 2008 accountings and submitted his

preliminary report on or about July 30, 2010.

In September 2010, Mr. Jones’ attorneys, Greenberg & Wilner made an

application to withdraw as counsel for Mr. Jones. By order dated September 29, 2010,

this application was granted and the matter was stayed to give Mr. Jones an opportunity

to retain new counsel. Shortly thereafter, the Court was notified that Mr. Jones was

not able to retain counsel and would appear pro se. The Court received Mr. Jones’

written response to Mr. Coen’s preliminary report which contained some direct answers

to issues raised by Mr. Coen. A framed issue hearing was held on November 22, 23,

and December 22, 2010 to determine the propriety of two mortgage transactions

involving 1295 Sterling Place and 64A Clifton Place.

1295 Sterling Place

On or about November 30, 2006, Mr. Jones, as guardian of the property of

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Josephine R., executed a mortgage giving five hundred twenty five thousand dollars

($525,000.00) to the mortgagor, 1295 Sterling Place LLC. An assignment of leases

and rents was also executed in favor of Ray Jones, guardian of the property of

Josephine R. Clover Barrett, presumably as principal of 1295 Sterling Place, LLC.,

personally guaranteed all terms of the mortgage, mortgage rider and assignment of

leases and rents. An attached mortgage rider specified that interest was calculated at

9% for the period of one year and the first year’s interest was prepaid from the subject

loan in the amount of forty seven thousand two hundred fifty dollars ($47,250.00). An

appraisal dated October 12, 2006, was submitted to the Court by Mr. Jones in response

to the court examiner’s preliminary report, showing an assessed value for 1295 Sterling

Place at seven hundred sixteen thousand dollars ($716,000.00). The appraiser, Jeffrey

Scott Jacobs, was not appointed by the court, nor is he listed as a possible candidate

for appointment on the Part 36 list.

On February 27, 2009, 1295 Sterling Place, LLC borrowed an additional sixty

thousand ($60,000.00) from another private lender in the form of a subordinate

mortgage. On the same date, a consolidation, extension, and modification agreement

was executed between 1295 Sterling Place, LLC and Ray Jones, guardian of the

property of Josephine R. The agreement lowered the interest rate from 9% to 7% on

the principal amount of five hundred twenty five thousand dollars $525,000.00.

Monthly payments in the amount of three thousand sixty two dollars and fifty cents

($3,062.50) were to begin on April 1, 2009 for a period not to exceed three years. At

the end of the three-year period, the entire principal of five hundred twenty five

thousand dollars ($525,000.00) is due and payable in one payment.

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60/64A Clifton Place

In another related case, the guardianship of Lucille S., Index #105063/1997, Mr.

Jones was appointed real estate broker by order dated July 14, 2004. This order

directed the possible sale of 60 Clifton Place, Brooklyn, NY. The contract of sale

references 60 Clifton Place, but actually lists the block and lot number as 1952/9. This

block/lot number is associated with 64A Clifton Place, Brooklyn, not 60 Clifton Place.

A subsequent order, dated October 1, 2004, appointed an appraiser and

directed an appraisal of 60 Clifton Place1. In a report dated November 8, 2004,

Christopher P. Clark valued 60 Clifton Place at three hundred fifty thousand dollars

($350,000.00). This report notes that a 30% adjustment was made to the value in

order to reflect the poor condition of the property2.

By order dated May 16, 2005, the court directed the sale of 60 Clifton Place, but

did not specify a particular block and lot number. The court awarded Mr. Jones twenty

one thousand two hundred fifty five dollars ($21,255.00) as his 5% commission for

services rendered as real estate broker and further awarded him three thousand seven

hundred fifty dollars ($3,750.00) for his legal services and nine hundred fifty dollars

($950.00) for paralegal services.

1 Despite all indications from the court record that Lucille S. owned 60 Clifton Place, a review of

the website of the Office of the City Register reveals that Lucille S. never had title to 60 Clifton Place (BBL 1952/5). Title remains with a third party not related to this proceeding. There are no documents recorded under Block 1952, Lot 5 (60 Clifton Place) which reference any of the parties mentioned in this decision.

2 In a report by the same appraiser dated October 2, 2002, the property was valued at one hundred forty thousand dollars ($140,000.00) with a 40% adjustment reflecting the poor condition of the property.

On May 19, 2005, Keri Watkins purchased 64A Clifton Place, Brooklyn (Block

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1952, Lot 9), from Sherrie Tanner-Campbell, guardian of the person and property of

Lucille S. for four hundred twenty five thousand one hundred dollars ($425,100.00). On

May 26, 2005, a mortgage was executed between Ezekiel Barnett, as mortgagor, and

Keri Watkins for six hundred thousand dollars ($600,000.00).

Almost two years later on April 10, 2007, three separate documents were

simultaneously executed. The first was a correction mortgage which amended the May

26, 2005 mortgage to reflect that Ezekiel Barnett was actually the mortgagee, not the

mortgagor. The second document was a mortgage wherein Josephine R., individually,

agreed to a mortgage giving six hundred fifty thousand dollars ($650,000.00) to Keri

Watkins at an interest rate of 9%. This document was only signed by Keri Watkins.

The third document was a subordination agreement executed between Ezekiel Barnett

and Josephine R., individually, for the subordination of Barnett’s May 26, 2005

mortgage (and the April 10, 2007 correction mortgage) to the six hundred fifty thousand

dollars ($650,000.00) mortgage in favor of Josephine R. As with the mortgage, Mr.

Barnett was the only party to sign this document.

Finally, on April 10, 2010, a consolidation, extension, and modification

agreement was executed between Keri Watkins and Ray Jones as guardian of

Josephine R. The agreement lowered the interest rate from 9% to 5% on the principal

amount of six hundred fifty thousand dollars ($650,000.00). Monthly payments in the

amount of two thousand seven hundred and eight dollars and thirty three cents

($2,708.33) were to begin May 1, 2010 for a period not to exceed 35 consecutive

months. At the end of 35 months, the entire principal of six hundred fifty thousand

dollars ($650,000.00) would be due and payable in one payment.

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Applicable Law

A guardian appointed pursuant to Article 81 of the Mental Hygiene Law is defined

as a fiduciary. SPCA §103(21), In re: Mel S. 15 Misc.3d 1037 [Supreme Court Ostego

County, 2007]. “[A] fiduciary owes a duty of undivided and undiluted loyalty to those

whose interests the fiduciary is to protect” Birnbaum v. Birnbaum 73 NY2d 461, 466,

citing Meinhard v. Salmon 249 NY 458, 463-464 [1928]. A guardian must “... exercise

the utmost care and diligence when acting on behalf of the incapacitated person” and

further “exhibit the utmost degree of trust, loyalty and fidelity in relation to the

incapacitated person”. MHL §81.20(a). A guardian of property management must

“preserve, protect, and account for such property and financial resources faithfully”.

MHL §81.20(a)(6)(ii). “This is a sensitive and ‘inflexible’ rule of fidelity, barring not only

blatant self-dealing, but also requiring avoidance of situations in which a fiduciary’s

personal interest possibly conflicts with the interest of those owed a fiduciary duty.”

Birnbaum at 466. A guardian may be removed when “the guardian fails to comply with

an order, is guilty of misconduct, or for any other cause which to the court shall appear

just”. MHL §81.35. “The trial court is accorded considerable discretion in determining

whether a guardian should be replaced and an overarching concern remains the best

interest of the incapacitated person. See, In re Joshua H., 62 AD3d 795 [2d Dept.

2009], In re Francis M., 58 AD3d 937 [3 Dept. 2009.]

MHL §81.21(a) permits a guardian to invest funds of the incapacitated person as

permitted by the Prudent Investment Act embodied in EPTL §11-2.3(e). The guardian

must “exercise reasonable care, skill and caution to make and implement investment

and management decisions as a prudent investor would for the entire portfolio, taking

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into account the purpose and terms and provisions of the governing instrument”. EPTL

§11-2.3.(b)(2), Matter of Janes, 90 NY2d 41, 50 [1997].

“The prudent investor rule requires a standard of conduct, not outcome or

performance.” EPTL §11-2.3.(b)(1). “While a court should not view each act or

omission aided or enlightened by hindsight, [citation omitted] a court may, nevertheless,

examine the fiduciary’s conduct over the entire course of the investment in determining

whether it has acted prudently.” Matter of Janes at 50; see also In Re Estate of

Atkinson 148 AD2d 329 [3 Dept., 1989]. The guardian’s conduct is judged upon the

facts that were known or should have been known to the guardian. In re JP Morgan

Chase Bank, 27 Misc3d 1201(A) [Surr Ct Westchester, 2010].

In determining overall investment strategy, EPTL §11-2.3(b)(3) requires that the

fiduciary consider several factors when investing assets. Specifically, EPTL

§11-2.3(b)(3)(B) requires a fiduciary to consider:

· the size of the portfolio · the nature and estimated duration of the fiduciary relationship, the liquidity

and distribution requirements of the governing instrument · general economic conditions · the possible effect of inflation or deflation · the expected tax consequences of investment decisions or strategies and of

distributions of income and principal · the role that each investment or course of action plays within the overall

portfolio · the expected total return of the portfolio (including both income and

appreciation of capital) · and the needs of the beneficiaries (to the extent reasonably known to the

trustee) for present and future distributions authorized or required by the governing instrument.

Pursuant to the Prudent Investment Act, the fiduciary is required to diversify

assets unless the fiduciary reasonably determines that it is in the interest of the

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beneficiaries not to diversify. EPTL §11-2.3.(b)(3)( c). Courts have considered the

failure to diversify as a factor when determining whether assets were invested with

prudence. See Matter of Janes 223 AD2d 20 [4 Dept., 1996], Matter of Saxton, 274

AD2d 110 [3 Dept., 2000], Matter of Newhoff, 107 AD2d 417[2 Dept., 1985]. For

example, a portfolio concentrating almost exclusively with high tech stocks

demonstrated poor financial judgment and warranted removal of guardians. In re

Huang 2003 WL 21048965 [Sup Ct., NY County 2003].

If the investments are imprudent or not diversified, the court may surcharge the

fiduciary for damages. Matter of Rothko, 43 NY2d 305, 401 [1977]. Whether a

fiduciary’s conduct was prudent is a factual determination to be assessed together with

all the facts and circumstances of a particular case. Matter of Janes 223 AD2d 20, 50

[4 Dept., 1996] Matter of Saxton, 274 AD2d 110, 118 [3 Dept., 2000].

Discussion

Following his suspension and the preliminary report of the court examiner, this

Court held a framed issue hearing on November 22, 23, and December 22, 2010 to

determine the propriety of Mr. Jones’ investment decisions for the two mortgages. The

court examiner subpoenaed Clover Barrett, Kerry Watkins, Ezekiel Barnett and Miko

Simmons Jones, a notary associated with both mortgage transactions, who is also the

wife of Mr. Jones. During the course of these hearings, the court examiner sought

testimony regarding the circumstances surrounding Mr. Jones’ decision to enter into the

two mortgage agreements related to 1295 Sterling Place and 64A Clifton Place. Mr.

Jones invoked his right against self incrimination to almost every question, except to

acknowledge that he is an attorney who was admitted to practice in the State of New

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York in 1984.

The privilege against self-incrimination may be asserted to protect a witness from

being compelled to provide “an answer which will tend to accuse himself of a crime or to

expose him to a penalty or forfeiture...” CPLR §4501. However, the witness must

invoke the privilege in response to individual questions and cannot invoke a blanket

refusal to answer all questions. State v. Carey Resources, Inc. 97 AD2d 508 at 509

[2d Dept 1983]. The fact finder may draw an adverse inference from the refusal to

answer relevant questions. Marine Midland Bank v. John Russo Produce Co. 50 NY2d

31 [1980]. It has even been held that a fiduciary who filed an official oath to faithfully

and honestly discharge the duties of the office waived the privilege against self

incrimination as to matters involving judicial accountings. Matter of the Estate of

Hamilton, 181 Misc.2d 697 [Surr. Ct. Queens, 1999].

As a court appointed fiduciary sworn to faithfully and honestly discharge his

duties, the Court finds Mr. Jones’ complete lack of candor extremely disturbing. Based

upon the court file, Mr. Jones’ written responses and his refusal to testify, it is difficult to

reconcile the circumstances described below with the standards of loyalty and fidelity

expected of a guardian. His written responses are merely attempts to mislead the

Court and conceal his misconduct. His unwillingness to answer any questions under

oath suggests that Mr. Jones understood the ramifications and consequences of his

actions. The Court will therefore rely on the evidence presented by the court examiner

and interim guardian and draw an adverse inference from Mr. Jones’ refusal to answer

any questions regarding the two mortgages.

Initially, it is noted that there was no Court authorization for either of the two

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mortgages at issue. While the order appointing Mr. Jones is silent with respect to

obtaining prior court approval for this type of investment, it is a common and prudent

practice in guardianship cases to seek prior court approval before disbursing large

portions of the incapacitated person’s assets. Guardians have always sought prior

court approval for the purchase or sale of real property and automobiles. Mr. Jones

has never offered any explanation for his egregious departure from standard practice in

regard to the two mortgages. Instead, he relies on a paragraph of the order and

judgment citing to the Prudent Investor Act. As discussed in more detail below, the

Court finds that this reliance cannot be justified by his conduct. The Court fails to see

how these transactions differ from any other large purchase utilizing guardianship

assets, especially when the transaction gives the guardianship an interest in real

property.

Mr. Jones also departed from standard practice by using the services of an

appraiser without prior court approval in violation of Part 36 of the Rules of the Chief

Judge. As a court appointed guardian [§22 NYCRR 36.1[a][1]], Mr. Jones’

unauthorized use of an appraiser violates §22 NYCRR 36.1[a][10]. “When a guardian

... subject to the provisions of Part 36 seeks to retain counsel, or an accountant,

appraiser, auctioneer, property manager or real estate broker, the retained professional

becomes a Part 36 appointee.” Id. The guardian ... must request that the judge

appoint such a professional... and the professional must comply with all the provisions

of Part 36...”. [Part 36 of the Rules of the Chief Judge: An Explanatory Note.] In this

case, the parties who performed the appraisal and signed the report constitute a

secondary appointment. However, they were neither appointed by the Court nor even

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candidates for such appointment on the Part 36 list. Since Mr. Jones failed to make a

prior application, the Court was deprived of any meaningful opportunity to appoint an

appraiser of its choosing and obtain a neutral assessment of the value of the two

parcels of property in question. The Court will evaluate each mortgage transaction

separately, taking into consideration the failure to obtain Court authorization for each

transaction individually and the failure to obtain approval for a Court appointed

appraiser.

1295 Sterling Place - Accounting Discrepancies

The Court has reviewed Mr. Jones’ filed accountings and his response to Mr.

Coen’s preliminary report filed with the Court during these hearings and found several

discrepancies regarding the mortgage payments received. The earlier individual

accountings were all filed after the close of the calendar year and should be complete

through the end of the reporting year. The later response shows additional payments

and a re -characterization of payments received that are inconsistent with the

chronology of events. In light of his unwillingness to testify and explain these

inconsistencies, the Court finds that Mr. Jones’ written responses to the court examiner

are questionable, self-serving and most likely an attempt to mislead the Court.

It is clear that the first year of interest payments for 1295 Sterling Place were

prepaid through November 29, 2007. This was not an actual payment received from

Ms. Barrett but rather an amount reduced from the total payout. [Transcript dated

December 22, 2010 P 40, L 3-6.] It appears that no payments of any sort were

received for December 2007 or the entire 2008 calendar year. In fact, it does not

appear that any other payments were received until sometime in early 2009. According

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to the 2009 accounting, an amount was purportedly received for interest payments past

due at 9% for the period of January 1, 2008 through January 31, 2009 (13 months)

totaling fifty one thousand one hundred eighty seven dollars and fifty cents

($51,187.50). A later interest payment of three thousand nine hundred seventy three

dollars and fifty cents ($3,973.50) was received for the month of February 2009. Based

on the individual 2008 and 2009 accountings, it would appear the mortgagor skipped a

payment for the month of December 2007.

Later in his written response to the court examiner, Mr. Jones adds an extra

payment of three thousand nine hundred seventy three dollars and fifty cents

($3,937.50) at the original 9% interest rate without any indication of when the payment

was received or what month it should be credited. The Court finds this re-statement

rather puzzling. Since all of the individual accountings were filed after the close of each

accounting period, there is no reasonable explanation for its omission in any of the

earlier accountings.

Another example of inconsistent reporting occurs after the parties agreed to

lower the interest rate. Notwithstanding the terms of the agreement that regular monthly

payments were to start on April 1, 2009, Mr. Jones’ earlier accounting makes no

indication that any other payments were received after March 2009. In contradiction,

Mr. Jones’ response to the court examiner now attempts to fill in missing information

and shows that multiple payments at 7% interest were received starting March 1, 2009

through May 2010, totaling forty five thousand nine hundred thirty seven dollars and fifty

cents ($45,937.50.) If there were actual payments, they were made contrary to the

terms of the modification agreement which states that the lower payments were to

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commence on April 1, 2009. Based on the terms of the contract, an incorrect payment

was received and an additional amount of eight hundred seventy five dollars ($875.00)

is due to the guardianship as the remaining balance of the March 2009 interest

payment.

1295 Sterling Place - Investment

In turning to Mr. Jones’ investment in the mortgage itself, the Court finds Mr.

Jones’ conduct and statements inconsistent with the prudent investor standard.

According to Mr. Jones’ accounting, Josephine R. had approximately $1.3 million dollars

in December 2005. Rather than invest the surplus in securities, Mr. Jones chose to loan

over 40% of the principal to 1295 Sterling Place, LLC. In light of the extremely

favorable financial position of the guardianship after the lump sum payment from the

settlement, the current court examiner questioned the suitability of this loan as an

investment.

In his response to the court examiner’s preliminary report, Mr. Jones contends

that his investment decisions are protected under the prudent investor standard

pursuant to EPTL §11-2.3. Specifically, he contends that the loan made to 1295

Sterling Place, LLC. was prudent based on speculation that the 9% interest he

obtained would outperform the market. To support his position, Mr. Jones uses

general references to approximate interest rates paid on money market accounts and

levels of the Dow Jones Industrial Average in 2006 and June 2010. His response lacks

any research or real comparison to specific types of investments or financial products

that could have been considered before making the current investment in question.

Mr. Jones also cites Matter of Atkinson, with emphasis that prudence is tested

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based upon conduct leading to the investment, not performance of the investment itself.

In Atkinson, the court disagreed with residuary beneficiaries who contended that the

co-executors’ premature sale of securities was imprudent. 148 AD2d 839 [3d Dept.,

1989]. Although the beneficiaries disagreed with the investment decision, “the record

shows that it was taken after consultation with the bank’s trust committee and was

considered a vehicle for a reasonable return on the funds without being unduly

speculative”. Id.

Far from Mr. Jones’ contentions, this Court’s analysis is not based upon the

performance of this investment, it is based upon the factors that Mr. Jones should have

considered before making the investment, but ignored. The prudent investor standard

sets forth very specific factors the fiduciary must consider in EPTL §11-2.3(b). In

addition, EPTL §11-2.3(c) specifically directs diversification of assets unless the

fiduciary reasonably determines that it is in the best interests of the beneficiaries not to

diversify. Mr. Jones’ reliance on Atkinson is unsupported by his own actions and does

not parallel the circumstances described in that case.

According to the most recent accountings, the overall portfolios consist of just

two mortgages. Mr. Jones failed to articulate any of the factors which led him to the

mortgage investment and makes no attempt to explain why he concentrated such a

large portion of guardianship assets in a single investment vehicle. Mr. Jones is

completely silent regarding any other types of investments he might have considered or

whether he consulted any financial professionals.

While Article 81 requires Mr. Jones to exercise the utmost care and diligence, at

no point can Mr. Jones show that he performed any investigation of the borrower’s

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credit worthiness as part of his understanding of this investment. Even though there

was no prior mortgage on 1295 Sterling Place, Ms. Barrett was still not able to obtain

conventional financing secured by this particular piece of property. During the

hearing, Ms. Barrett testified that the combination of her less than perfect credit rating

and substantial debt made it difficult to obtain a loan through conventional lenders and

she finally resorted to private lenders. [Transcript dated December 22, 2010 P 21, L 17

through P 22 L 21.]

These facts were known to Mr. Jones and were not withheld from him at the time

of the loan, yet he did not seek any further investigation. Ms. Barrett was not required

to submit a financial statement. There was no formal application process or credit

check. Although she personally guaranteed the mortgage, Ms. Barrett’s assets were

so heavily mortgaged that it is unclear whether she had the ability to repay this loan.

Based on the transactions of February 27, 2009, it is clear that Ms. Barrett had to draw

an additional sixty thousand dollars ($60,000.00) of equity from 1295 Sterling Place in

order to pay the past due interest payments of the previous year. None of these

issues are even addressed in Mr. Jones’ responses. Mr. Jones failed to show any due

diligence in regards to his consideration of this investment.

Mr. Jones’ reliance on the fact that Josephine R.’s expenses do not exceed her

income as a reason for this investment is disingenuous. In his written response to the

court examiner’s preliminary report, Mr. Jones states that the incapacitated person

would not need her surplus assets. The simple calculation that her monthly income

exceeds her monthly disbursements is not a standard used to evaluate suitability of an

investment. A guardianship is not required to spend all of its yearly income and assets.

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The Court finds Mr. Jones’ reasoning contradicts the duty of an Article 81 guardian to

protect the assets of the incapacitated person. This reasoning would permit any

guardian to invest without regard to risk and would have a corrosive effect on any

guardianship holding substantial assets. The Court cannot condone such action.

Assuming arguendo that the mortgage was a prudent investment, Mr. Jones

failed to protect his ward’s income. As guardian of the property, Mr. Jones is charged

with marshaling the assets and income of the guardianship. However, Mr. Jones

violated his fiduciary duty in his failure to collect a known income stream owed to the

guardianship. Based on the lack of payments in 2008 alone, Mr. Jones failed to collect

over fifty thousand dollars ($50,000.00) of income due. There is no evidence of

demand for payment, and no payments were made until more than one year after the

prepayment period expired. Even if the expected 9% return outperformed the market,

its benefits were defeated with every missing payment.

This Court also finds that the modification agreement of decreased interest runs

contrary to the best interests of the guardianship. Despite the borrower’s history of late

payments the applicable interest rate was decreased from 9% to 7%. According to Ms.

Barrett’s testimony, there was no consideration in exchange for the decreased interest

rate. Ms. Barrett simply requested it based on the average rate prevalent at the time.

[Transcript dated December 22, 2010 P 55, L 16-23.] It is difficult to believe that the

Josephine R. guardianship benefits from the decreased interest income since the

modification deprives his ward of eight hundred seventy five dollars ($875.00) of interest

payments per month. Given this fact, Mr. Jones fails to provide any basis or rationale for

this agreement. Although he states in his written response that the lower interest rate

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was contemplated at the time of the initial agreement, it is not embodied in the

mortgage, the rider, or any other contemporaneously executed document.

Based upon these factors, the Court finds that Mr. Jones abused his discretion in

entering into this mortgage agreement and failed to exercise due diligence in committing

guardianship assets to this investment. The guardianship assets were not diversified,

nor was there any attempt to investigate any other type of investment. At this juncture,

the entire portfolio consisted of just cash and this mortgage. There was no overall

investment strategy. Mr. Jones was not limited to his own knowledge of investment

strategies. EPTL §11-2.4( c) permits a fiduciary to delegate investment and

management functions to a third party. As such, there is no reasonable basis for

nearly half of the guardianship assets to be invested in this property alone. Coupled

with his later failure to collect interest income for over a year, Mr. Jones’ conduct

ultimately leading to this investment lacks any of the qualities that would be protected

under the Prudent Investment Act.

In evaluating whether to vacate this mortgage, the Court is aware of the previous

delinquencies in payments and the questionable modification of interest rates.

However, during the course of the hearings, the Court also learned that the loan is now

current. Since the hearings, the mortgagor has prepaid all interest through February

2012, pursuant to the modification agreement. The interim guardian has also informed

the Court that Ms. Barrett has made efforts to make payments towards the principal.

Ms. Barrett has made good faith efforts upon an agreement she thought was valid.

Based upon these factors, the Court will not disturb this mortgage. Vacating the

mortgage at this stage would cause the guardianship to incur further expense and

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possible litigation. Although the investment itself is not prudent, a successor guardian

shall have the opportunity to evaluate the loan pursuant to the modification agreement

when the lump sum payment is due in February 2012. See Matter of Hahn, 93 AD2d

583 [4 Dept, 1983].

60/64A Clifton Place

Mr. Jones’ 2007 accounting reflects the 64A Clifton Place transaction as a single

lump sum of six hundred fifty thousand dollars ($650,000.00), withdrawn from the

guardianship account held at Signature Bank. Since Mr. Jones did not produce a

closing statement or any supporting documents related to this transaction, the court

examiner subpoenaed bank records surrounding this withdrawal. The bank records

show that instead of drawing several certified checks directly from the guardianship

account, Mr. Jones withdrew the entire sum as a single transaction. In doing so, Mr.

Jones attempted to conceal the identity of the payees and the amounts they received.

The six hundred fifty thousand dollars ($650,000.00) was divided into seven bank

checks drawn from Signature Bank on April 10, 2007. [Court Examiner’s Exhibit 23, A

through G.] The first group consists of four consecutive checks starting with check

#34802243 through #34802246. The second group consists of three consecutive

checks starting with check #348302250 through #348302252.

Although Mr. Jones would have this Court believe that Ms. Watkins prepaid

interest for one year, the evidence shows that Ms. Watkins did not actually make a

payment; the interest payment was simply deducted from the total principal. In the

series of checks mentioned above, the first check, #34802243, was made payable to

Josephine R. in the amount of fifty eight thousand five hundred dollars ($58,500.00),

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representing the prepayment of interest for the first year. The check was endorsed by

Ray Jones and deposited back into the guardianship account the next day. This

transaction is reflected in his accounting as income even though the same guardianship

account was the original source of the check.

The last check, #348302252, was made payable to Keri Watkins in the amount of

four hundred twenty one thousand four hundred seventy seven dollars and forty six

cents ($421,477.46), representing the balance minus the first year’s interest of fifty eight

thousand five hundred dollars ($58,500.00), two checks totaling one hundred forty eight

thousand eight hundred seven dollars and fifty six cents ($148,807.56) to Mr. Barnett,

and twenty one thousand two hundred fourteen dollars and ninety eight cents

($21,214.98) in fees. Mr. Jones failed to provide any written explanation for these

disbursements and when presented with copies of these checks refused to respond in

any substantive manner.

On or about September 27, 2010, Ms. Watkins attempted to make a payment

from her 60 Clifton Place business account in the amount of seventy eight thousand five

hundred forty two dollars ($78,542.00) to Ms. Redlisky, the interim guardian. This

check was later returned for insufficient funds. [Court Examiner’s Exhibit 28]. Other than

the fifty eight thousand five hundred dollars ($58,500.00), no other payments are

reflected in any subsequent accountings or responses to the Court, nor does Mr. Jones

allege that any have been collected. Mr. Jones’ failure to enforce the terms of the

mortgage agreement is a violation of his duty to marshal the income due to his ward.

Any argument supporting the intended benefits of a 9% rate of return was negated with

every subsequent failure to collect payments.

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Also consistent with the prior transaction is the modification agreement reducing

the interest from 9%. In this case, Mr. Jones agreed to reduce the interest to an even

lower rate of 5%. This document was allegedly executed just two months prior to a

court ordered appearance. Prior to the reassignment of this case to this Court, Hon.

Loren Baily-Schiffman issued two orders in April 2010. The first was an order dated

April 20, 2010, restricting the guardians from transferring or withdrawing funds in excess

of five thousand dollars ($5,000.00) without prior court approval. The second dated

April 29, 2010, was a compliance order directing the guardians to appear on June 4,

2010, with supporting documentation pertaining to accountings for the years 2003

through 2007.

Although the modification agreement is dated April 10, 2010, Ms. Watkins’

signature is not notarized until May 15, 2010 and Mr. Jones’ signature is not notarized

until June 22, 2010. The alleged date of the agreement coincides with the anniversary

date of the mortgage but both signatures were notarized well after the April 10, 2010

order restricting expenditures and the April 29, 2010 compliance order. At the June 4

and June 23, 2010 appearances Mr. Jones withheld information of this document from

the Court since it was not yet recorded and did not appear on the Automated City

Register Information System [ACRIS]. At the hearings held in November 2010, neither

Mr. Jones nor Ms. Watkins would testify to the circumstances which led to the execution

of this agreement. The Court therefore has no choice but to assume that the

modification was executed in direct reaction to the two orders issued in April. It was a

deliberate attempt to deceive and mislead the Court, the court examiner and the interim

guardian and reduce Ms. Watkin’s liability before anyone had an opportunity to inquire

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with a complete understanding of the case.

Assuming arguendo that the modification agreement was a valid contract, Mr.

Jones breached his duty of loyalty by intentionally depriving his ward of guaranteed

income at the higher contractually obligated rate. At the execution of the modification

agreement, interest payments were already unpaid for one year and there was no

attempt to bring the loan current. To date, the guardianship has not received a single

payment from Ms. Watkins and she is now rewarded with an even lower interest rate.

She was not subject to penalty fees and there was no attempt to accelerate the loan or

foreclose on the property. It is clear that Ms. Watkins was the only one to receive any

obvious benefit.

Mr. Jones’ written response indicates that the parties agreed to a reduction of

interest for “9% for the first year; 7% and 5%, respectively, thereafter for one to three

years.” [Ray Jones’ Response to Preliminary Report of Successor Court Examiner P.

RJ0050.] Again, there are no contemporaneously executed documents to even

suggest that this was the agreement contemplated by the parties. If this statement were

actually the case, the guardianship is owed at least one year of interest at 7%. Mr.

Jones did not even reduce the rate to 7% as he alleged was the understanding between

the parties. Instead he arbitrarily chose the lowest possible rate resulting in a two

thousand one hundred sixteen dollars and sixty seven cent ($2,116.67) reduction per

month.

To support his position that the investment in 64A Clifton Place was a prudent

investment, Mr. Jones submitted an appraisal dated April 4, 2007 valuing the property at

nine hundred twenty five thousand dollar ($925,000.00). When comparing this

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appraisal and the two earlier appraisals from the Lucille S. guardianship, the Court

notes that all three reports indicate that the property being assessed is 60 Clifton Place,

not 64A Clifton Place. As noted in an earlier footnote, this mistake seems to run

consistently through all documents relating to the subject property. However, the Court

will accept the 2002 and 2004 appraisals as they were reports accepted by the previous

court and the property actually transferred between the Lucille S. guardianship and Keri

Watkins was in fact 64A Clifton Place. The Court also accepts the 2007 appraisal for

the limited purpose that the report correctly identified 64A Clifton Place by its block and

lot number.

In turning to the substance of these three reports, it is troubling to note that the

two previous appraisal reports indicate that the property was already in poor condition

as early as 2002. In the third and latest report submitted by Mr. Jones, the appraisal

goes into greater detail and describes the property as “an exterior shell with a

compromised roof, no windows and some interior sub-flooring”. According to the same

appraisal, the subject property had no interior and was therefore not habitable. Given

the unchanged condition of the property over this prolonged period of time, the Court

rejects the 2007 appraisal and the notion that the value of the property almost tripled

from three hundred fifty thousand dollars ($350,000.00) in 2004 to nine hundred twenty

five thousand dollars ($925,000.00) in 2007 without any repair. Furthermore, given that

all of the appraisals consistently report the poor condition of the property, Mr. Jones fails

to provide any explanation to support why this property was worth investing in at all.

This mortgage was essentially secured by a parcel of property that was worth a fraction

of the amount of the loan.

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Excluding the appraisal, Mr. Jones has not offered any evidence to establish

that he performed any other type of research or investigation related to this

questionable investment. It is clear to this Court that Mr. Jones failed to perform any

due diligence in making this investment. As with the Sterling Place transaction, Mr.

Jones failed to investigate the creditworthiness of Ms. Watkins. In making this

investment decision, it also appears that Mr. Jones did not consider that there was an

already existing mortgage on the property for six hundred thousand dollars

($600,000.00). He did not even inquire whether that loan was current. Although a

subordination agreement was purportedly executed in favor of the guardianship of

Josephine R., Mr. Jones seems to ignore the fact that the total equity drawn from 64A

Clifton Place would amount to one million two hundred fifty thousand dollars

($1,250,000.00), excluding interest. In light of these existing facts, he failed to explain

why he loaned Ms. Watkins a mortgage of six hundred fifty thousand dollars

($650,000.00), an amount in excess of 150% of the known purchase price.

Moreover, with this second loan, over 75% of the guardianship assets were

exclusively invested in just two real estate mortgages. This investment directly

contravenes the requirement to diversify assets in accordance with EPTL

§11-2.3(b)(3)( c). Mr. Jones fails to offer any reasonable explanation for this highly

unusual concentration of investments. Based upon the total portfolio of two

investments, it is clear that Mr. Jones’ poor judgment resulted in unnecessary risk to the

guardianship assets.

In evaluating whether to set aside this transaction and surcharge Mr. Jones, the

Court finds the circumstances surrounding this investment even more suspect than the

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previous investment in 1295 Sterling Place. A review of the April 10, 2007 mortgage

reveals that it was executed and recorded as an agreement between Keri Watkins and

Josephine R. as mortgagee, not the Josephine R. guardianship. Likewise, the

subordination agreement is between Ezekiel Barnett and Josephine R. individually.

Accordingly, Josephine R. would be personally liable for the terms of both agreements.

During his testimony, Mr. Barnett was presented with the subordination agreement and

did not recognize the signature to be his own. [Transcript dated November 23, 2010 P

219, L 9 through L 19.] He did not recall ever executing such a document. He also

denied whether he knew Keri Watkins or Miko N. Simmons, the notary of his signature

and Mr. Jones’ wife. In light of Mr. Barnett’s sworn testimony, it is questionable

whether the subordination agreement is valid and whether the subsequently recorded

mortgage would be subordinate to Mr. Barnett’s first mortgage.

The facts surrounding this particular transaction also reveal a network of

relationships which clearly indicate several undisclosed conflicts of interest. Not only

did Mr. Jones have prior knowledge of the condition and depreciated value of 64A

Clifton Place, he was involved in the transaction to sell it to Ms. Watkins. As the court

appointed broker in the guardianship of Lucille S., Mr. Jones had knowledge of the

details contained in previously court ordered appraisals. He knew the property was

previously appraised at three hundred fifty thousand dollars ($350,000.00) and was sold

to Ms. Watkins for four hundred twenty five thousand dollars ($425,000.00), as this was

completed with his supervision. With the simultaneous execution of the correction

mortgage, subordination agreement and the mortgage with Josephine R., there can be

no question that Mr. Jones also knew of the preexisting six hundred thousand dollar

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($600,000.00) mortgage with Ezekiel Barnett.

Mr. Jones relied on the fact that each guardianship is managed as a discrete

individual case and each handled by a different judge. Since he did not seek any court

approval for this transaction, he purposefully avoided any opportunity for this Court to

evaluate any of his previous involvement. There can also be no question that Mr.

Jones entered into the mortgage knowing that the appraisals over-inflated the value of

the property to such an extent that it did not reflect the true condition of the property

itself. Having been involved in so many aspects related to the transfer and financing of

this property, Mr. Jones sought to further his own interest by earning multiple

commissions on the same property.

Facts contained in a recent decision by Hon. Betsy Barros, reveal that Mr. Jones

also had an undisclosed prior relationship with Ezekiel Barnett. In re Jones, 31 Misc3d,

1205 (A) [Kings County Supreme Court, 2001]. Mr. Barnett was the original intended

purchaser of the property held by the guardianship of Mary Dicks wherein Mr. Jones

served as the guardian ad litem, attorney for the conservator in this transaction and

ultimately the successful purchaser as co-guardian/trustee of the Roy L. guardianship.

Mr. Jones later hired Mr. Barnett as a contractor for renovations to the same property in

May 2000. The court found that Mr. Jones improperly paid Mr. Barnett one hundred

thousand dollars ($100,000.00) for renovations that were never successfully completed.

Judge Barros also found that it was improper for Mr. Jones to rent an apartment from

Mr. Barnett on behalf of the incapacitated person and his mother during the course of

renovations.

In the case at bar, Mr. Barnett was not only the first mortgagee of 64A Clifton

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Place, he also testified that he was previously represented by Mr. Jones in the purchase

of an unrelated piece of property in 2000, presumably the property mentioned in the

above paragraph. [Transcript dated November 23, 2010 P 229, L 9 through L 18].

Mr. Barnett did not mention that Mr. Jones hired him as a contractor and later paid him

rent on behalf of another incapacitated person. But for the publication of Judge

Barros’ findings and decision, this Court would not have known, nor would Mr. Jones

have disclosed, the extensive nature of their business relationship.

In addition to his marriage to Miko N. Simmons, a business relationship also

existed between Keri Watkins and Ms. Simmons. Both Ms. Watkins and Ms. Simmons

were subpoenaed to testify before this Court on November 22, 2010. Both witnesses

identified themselves and provided their current addresses. Ms. Simmons testified that

she is currently married to Mr. Jones. Both witnesses asserted their Fifth Amendment

right to remain silent to most questions. The Court will therefore draw a negative

inference from their failure to answer questions under oath.

Two days after the six hundred fifty thousand dollar ($650,000.00) mortgage to

Keri Watkins, another series of transactions occurred between Ms. Watkins and Ms.

Simmons. During the hearing, the successor court examiner and the interim guardian

produced evidence that Keri Watkins gave a two hundred thousand dollar ($200,000.00)

mortgage to Miko N. Simmons on April 12, 2007. [Court Examiner’s Exhibit 25.] This

mortgage was recorded for the property known as 1142 Dean Street, the location once

owned by Mr. Jones, later transferred to his wife [Court Examiner’s Exhibit 26.], and his

current business address. Subpoenaed bank statements and checks reveal that on the

same date, Ms. Watkins purchased a bank check in the amount of two hundred

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thousand dollars ($200,000.00) made payable to Chase Bank. [Interim Guardian’s

Exhibit H.] This check was used to pay off a home equity line of credit established in

the name of Miko N. Simmons Jones, on April 13, 2007. [Court Examiner’s Exhibit 30.]

Even to a casual observer this would appear to be an indirect kick-back to Mr. Jones

through his spouse.

A second series of transactions occurred just after the interim guardian issued a

demand for interest payments due to the guardianship. Approximately two months

after this Court suspended Mr. Jones, Ms. Simmons wrote a ninety thousand dollar

($90,000.00) check to Keri Watkins’ business account, 60 Clifton Place, LLC., dated

September 25, 2010. [Court Examiner’s Exhibit 27A.] Ms. Simmons’ check was

deposited and later returned for insufficient funds on September 30, 2010. [Interim

Guardian’s Exhibit D.] This directly resulted in the return of Ms. Watkins’ check of

seventy eight thousand five hundred forty two dollar ($78,542.00) on October 5, 2010.

[Court Examiner’s Exhibit 28.] Though Ms. Watkins indicated that a “replacement check”

would be issued, the interim guardian received no further payments. One can only

conclude that the attempted transfer of funds between Ms. Simmons and Ms. Watkins

was another deliberate attempt to mask the kick-back originally received in April 2007.

Monitoring this case within the narrow confines of this guardianship alone, the

Court might have only concluded that this was an imprudent investment. However,

further scrutiny reveals that the parties only made an investment in this property on

paper. Unlike the 1295 Sterling Place mortgage, this investment appears to be a

scheme to extract the maximum amount of equity from an uninhabitable piece of

property and further profit by churning fees and commissions and hyper-inflating the

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value of 64A Clifton Place. In addition to commissions already awarded as broker in

the Lucille S. guardianship, Mr. Jones would have received commissions based upon

the income and disbursements in this guardianship pursuant to SCPA §2307. The

commissions would have also been calculated on a larger than necessary disbursement

based on an over-inflated valuation of the property.

Mr. Jones’ actions show that he was fully aware of his flagrant transgressions as

evidenced by the attempt to make this appear like a legitimate transaction. The

evidence portrays a pattern of unconscionable conduct and self-dealing to advance his

own financial interests and personal profit. In fact, Mr. Jones indirectly benefitted from

the payoff of his wife’s debt. There has never been a showing of a bona fide attempt to

collect any amounts owed to the guardianship. There is substantial evidence to

support the fact that the total cash investment in this property is far greater than its

actual value, even at the time the investment was made. There is further evidence to

suggest that 64A Clifton Place has gone without maintenance and repair since Ms.

Watkins’ purchase and the investment is therefore a waste of guardianship assets.

The Court cannot justifiably permit the guardianship or Josephine R., personally, to

absorb the loss on the remote possibility that any payments are forthcoming or that the

mortgage agreement supercedes any previous interest on 64A Clifton Place. As such,

the April 10, 2007 mortgage agreement and the April 10, 2010 modification agreement

are therefore vacated.

Surcharge

Based on the above findings, the Court finds that Mr. Jones shall be surcharged

the amount of six hundred fifty thousand dollars ($650,000.00) at 9% interest pursuant

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to CPLR §5004. Interest shall be computed from April 10, 2007, the date the

mortgage for 64A Clifton Place was executed and the funds transferred. CPLR §5001.

ORDERED and ADJUDGED, that the mortgage dated April 10, 2007, between

Keri Waktins and Josephine R. for the amount of six hundred fifty thousand dollars

($650,000.00) is hereby vacated, and it is

ORDERED and ADJUDGED, that the consolidation, extension, and modification

agreement dated April 10, 2010, between Keri Watkins and Josephine R. Guardianship,

Ray Jones as guardian, decreasing the interest rate from 9% to 5% is hereby vacated;

and it is

ORDERED and ADJUDGED, that Ray Jones shall pay the amount of six hundred

fifty thousand dollars ($650.000.00) as and for his surcharge plus interest calculated at

9% from April 10, 2007; and it is

ORDERED and ADJUDGED, that the successor court examiner Seth Coen is

hereby directed to review the 2003 through 2007 accountings submitted by Ray Jones;

and it is

ORDERED and ADJUDGED, that Ray Jones, Esq., Linda Redlisky, Esq., Seth

Coen, Esq., and William Mait, Esq. shall appear on August 5, 2011 at 10:00 A.M. for a

further hearing on the 2003 through 2007 accountings.

This constitutes the decision and order of the Court.

ENTER

_______________________