McGraw v. Collier (In re Collier), 497 B.R. 877

Debtor filed Chapter 7 on July 2, 2010; Plaintiffs sued to determine dischargeability of debts under 523(a)(2), (4), (6), (19).
Plaintiffs allege Debtor, as financial adviser, sold SIB CDs misrepresented as FDIC-insured and safe investments.
CDs were issued by Stanford International Bank (Antigua) and were part of a broader Ponzi-like scheme later placed in receivership.
Debtor testified he informed Plaintiffs the CDs were not FDIC-insured and that the investments were safe based on his investigation.
Plaintiffs claim Debtor caused the LLC and McGraw to invest via subscription agreements and investor questionnaires allegedly showing false or inflated net worth.
After Stanford’s receivership in 2009, Debtor worked for Sterne Agee but resigned in 2011 amid regulatory scrutiny; numerous clients remain unsecured creditors in Debtor’s bankruptcy case.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether 523(a)(2) applies to alleged fraud in CDs held for Plaintiffs.	Plaintiffs contend Debtor made false representations about FDIC-insurance and safety.	Debtor asserts no false representations; he believed the CDs were safe.	Not proven by preponderance; no conclusive misrepresentation established.
Whether 523(a)(4) applies to fraud/defalcation by a fiduciary.	Plaintiffs argue Debtor, as an investment adviser, was a fiduciary and defrauded.	No express trust or fiduciary control over funds; Debtor acted as middleman.	Debtor not a fiduciary under 523(a)(4) for these transactions.
Whether 523(a)(19) applies given potential securities violations.	Debtor violated securities laws; debts should be nondischargeable.	No memorialized determination or settlement proving violations before/after petition.	Section 523(a)(19) not satisfied; no non-bankruptcy determination in record.
Whether 523(a)(6) supports nondischargeability for willful/malicious injury.	Debtor willfully injured plaintiffs by faulty investment practices.	No evidence of willful/malicious intent to harm plaintiffs.	No willful/malicious injury established; defense prevails.

Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (preponderance standard applies to 523(a) dischargeability issues)
Treadwell v. Glenstone Lodge, Inc. (In re Treadwell), 637 F.3d 855 (8th Cir. 2011) (elements of actual fraud under 523(a)(2))
R & R Ready Mix v. Freier (In re Freier), 604 F.3d 583 (8th Cir. 2010) (five elements of actual fraud standard (Eighth Circuit))
Wright v. Nat’l Warranty Co., 953 F.2d 256 (6th Cir. 1992) (accredited investor representations; estoppel against later denial)
In re Jafari, 401 B.R. 494 (Bankr. D. Colo. 2009) (precedent on 523(a)(19) memorialization before/after petition)
In re Librandi, 183 B.R. 379 (M.D. Pa. 1995) (fiduciary status and middleman analysis under 523(a)(4))
In re Zinck, 321 B.R. 916 (Bankr. W.D. Wis. 2005) (fiduciary capacity and investment adviser context)
In re Berry, 174 B.R. 449 (Bankr. N.D. Tex. 1994) (broker-debtor as middleman not fiduciary under 523(a)(4))