Squandering a minor's trust fund

Question: When our sister died ten years ago, my brother became the trustee of her five-year-old daughter’s trust. Drew invested Mandy’s money in a business he was starting, and Mandy received stock in return. The business folded this year, and now the stock is worthless. Shouldn’t Drew repay our niece the money he lost? He says what happened is nobody’s fault.

Answer: That’s just the way the investment cookie crumbles, is it? Drew’s probably also thinking that if his company had been the next Google, he’d be a hero for making Mandy rich.

Well, he’s right that a good outcome can obscure bad judgment. But he’s wrong to imagine that what happened to Mandy’s inheritance is nobody’s fault. It’s his fault. Moreover, your brother wasn’t just foolish or unlucky, he was unethical. First, instead of handling your niece’s money responsibly, he poured all of it into a single, untried business. If Drew either didn’t know enough or didn’t care enough to invest more wisely than that, he had an obligation to turn the job over to someone who did.

Worse, not only was Drew irresponsible, he engaged in self-dealing. That wasn’t just any business he put Mandy’s money in, it was his business. What could be a clearer conflict of interest?

If we had your brother’s photo to hang on our Money & Ethics Wall of Shame, we’d be putting it at least as close to Bernie Madoff’s as to Scrooge McDuck’s. The guy is unequivocally obligated to make Mandy whole. Pronto.

Questions? Email Money Magazine’s ethicists – authors of “Isn’t It Their Turn to Pick Up the Check?” (Free Press) – at FlemingandSchwarz@right-thing.net.