Morgan Stanley

FINRA Sanctions Morgan Stanley and Scottrade for Failing to Supervise Customer Transfers to Third-Party Accounts

August 9, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) issued a press release concerning two settlements fining Morgan Stanley Smith Barney, LLC (Morgan Stanley) $650,000 and Scottrade, Inc. $300,000 for failing to implement reasonable supervisory systems to monitor the transmittal of customer funds to third-party accounts. The settlements included allegations that both firms had weak supervisory systems after FINRA examination teams reviewed the firms in 2011, but neither took necessary steps to correct the supervisory gaps.

Brad Bennett, Executive Vice President and Chief of Enforcement, was quoted in the press release as stating that, “Firms must have robust supervisory systems to monitor and protect the movement of customer funds. Morgan Stanley and Scottrade had been alerted to significant gaps in their systems by FINRA staff, yet years went by before either firm implemented sufficient corrective measures.”

In the Morgan Stanley settlement, FINRA alleged that from October 2008, to June 2013, three Morgan Stanley brokers in two different branch offices converted a total of $494,400 from thirteen customers by creating fraudulent wire transfer orders and checks to third-party accounts. In one example, the brokers moved funds from multiple customer accounts to their own personal bank accounts. FINRA found that in these instances Morgan Stanley’s supervisory systems and procedures to review and monitor transmittals of customer funds through wire transfers were not reasonable and could not detect multiple customer account transfers to the same third-party accounts and outside entities. In sum, FINRA found that the supervisory failures allowed the conversions to go undetected.

Former Morgan Stanley Broker Debra Lyman Sanctioned Over Unauthorized Trading

July 23, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) fined and suspended broker Debra Lyman (Lyman) concerning allegations that between January 2013 through November 2013 Lyman engaged in unauthorized or discretionary trading in six client accounts without proper written permission.

Lyman was associated with Morgan Stanley from 1998 , through January 17, 2014. Respondent was terminated by the firm for exercising discretion in client accounts without obtaining written authorization. In addition to the FINRA complaint, Lyman has been the subject of at least five customer complaints, the majority of which complain of high commissions and fees associated with unauthorized and excessive trading activity, commonly known and referred to as churning.

NASD Conduct Rule 2510(b) prohibits brokers from exercising discretionary power in a customer’s account unless such customer has given prior written authorization to the broker and the brokerage firm has accepted the account as discretionary. FINRA alleged that from January through November 2013, Lyman effected discretionary transactions in at least six customer accounts without obtaining prior written authorization from the customers and without the accounts being accepted as discretionary by Morgan Stanley.

Broker Michael Gates Alleged to Have Made Unauthorized Trades in Client Accounts

June 17, 2015 | by Staff Attorney

According to broker Michael Gates (Gates) Financial Industry Regulatory Authority (FINRA) BrokerCheck records the representative was recently sanctioned concerning allegations that from January 2011, through October 2011, he effected approximately 22 discretionary transactions for two firm customers without written authorization from the customers or approval from the firm.

Gates first entered the securities industry in September 1997. Thereafter, in April 2004, Gates became registered with Wells Fargo Advisors, LLC (Wells Fargo). In March 2012, Wells Fargo terminated Gates alleging that the broker may have entered mutual fund sales without authorization of his clients. After termination of his registration with Wells Fargo, Gates became registered with Morgan Stanley where he is currently registered. In addition, at least two customers have filed complaints against Gates alleging unsuitable investments, and excessive trading (churning).

NASD Rule 2510 prohibits brokers from exercising any discretionary power in a customer’s account unless there is written authorization and the account has been accepted by the member. FINRA alleged that Gates was not approved by his firm to exercise discretion in the customers accounts but nonetheless effected 22 discretionary transactions for two customers.

Morgan Stanley and Broker Ami Forte Subject to $400 Million Investor Complaint

June 8, 2015 | by Staff Attorney

According to InvestmentNews, the widow of Roy M. Speer, co-founder of the Home Shopping Network, has filed a complaint with The Financial Industry Regulatory Authority (FINRA) against Morgan Stanley Wealth Management along with an adviser Ami Forte (Forte) and branch manager Terry McCoy (McCoy) for $400 million. Morgan Stanley acknowledged the arbitration claim in a disclosure in the brokerage’s publicly filed annual financial report but only indicated the amount in controversy was for more than $170 million.

Mr. Speer’s widow is claiming that Morgan Stanley and their adviser engaged in excessive trading – also referred to as churning, unauthorized use of discretion, and abused their fiduciary duty. According to the complaint, Mr. Speer suffered from diminished capacity during the last five years of his life. During this time his adviser and others at the firm made approximately 12,000 unauthorized trades generating an eye popping $40 million in commissions.

Unfortunately, cases such as these are becoming increasingly common. Our firm has handled a number of cases where a wealthy investor has been taken advantage of due to diminished capacity. In other cases a spouse who inherits or assumes management over an affluent estate has very little financial experience and places their trust in their brokerage firm and financial advisor only to be charged millions in fees and high commission products. Often times these financial strategies are completely unreasonable and unjustifiable. Wealthy investors often have financial needs that do not exceed even a tiny fraction of their overall net worth. Yet, there have been cases where brokers place sizable portions of their client’s massive estates at jeopardy in order to generate millions in fees while providing absolutely no benefit for their client.

Wells Fargo Broker Aaron Parthemer Barred Over Private Securities Sales

May 19, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred broker Aaron Parthemer (Parthemer) concerning allegations that Parthemer engaged in private securities transactions – also known as “selling away.” FINRA alleged that from June 2009, through March 2013, Parthemer engaged in several undisclosed outside business activities, loaned nearly $400,000 to three firm customers without permission from his firm, presented an undisclosed private securities transaction through which eight firm customers invested more than $3 million, and provided false information and false documents to Morgan Stanley, Wells Fargo, and FINRA.

In October 1994 Parthemer first became registered with FINRA firm. From June 2009, through October 21, 2011, he was registered through Morgan Stanley Smith Barney LLC (Morgan Stanley). On November 4, 2011, Morgan Stanley filed a filed a termination notice stating that Parthemer’s termination from the firm was voluntary. From October 21, 2011, until May 2015, Parthemer was registered with Wells Fargo Advisors, LLC (Wells Fargo).

FINRA found that from approximately July 2009, through February 2012, Parthemer participated in a private securities transaction regarding a company referred to by the initials “GVC”, a startup internet branding company managed by a friend of Parthemers referred to by the initials “GH”. FINRA alleged that Parthemer referred several of his NFL and NBA clients to his friend for the purpose of investing in GVC. Subsequently, approximately eight of Parthemer’s clients purchased approximately $3.08 million of preferred GVC stock. FINRA found that Parthemer facilitated the transactions by hosting a presentation for investors conducted by GH at Parthemer’s home, sending PowerPoint presentations and other information concerning GVC to potential investors, and forwarding and retrieving required documentation to and from investors.

Why the Investing Public Falsely Believes Advisors Are Fiduciaries

May 13, 2015 | by Staff Attorney

The investor advocacy bar association PIABA (the Public Investors Arbitration Bar Association) has recently issued a report called “Major Investor Losses Due to Conflicted Advice: Brokerage Industry Advertising Creates the Illusion of Fiduciary Duty.” The PIABA report argues that the brokerage industry uses false advertising to convey to investors that the firms have a fiduciary duty to their clients only then to do a 180 turn when sued to claim that no such duty exists.

According to the report, some of the largest firms in the United States are falsely advertise in this fashion including Merrill Lynch, Wells Fargo, Morgan Stanley, UBS, Fidelity, Ameriprise, Allstate Financial, Berthel Fisher, and Charles Schwab. The report claimed that all of these firms “advertise in a fashion that is designed to lull investors into the belief that they are being offered the services of a fiduciary.”

In the wake of the financial crisis of 2008, the Dodd-Frank legislation authorized the Securities Exchange Commission (SEC) to pass a fiduciary duty rule that would apply to brokers, as opposed to only financial advisors. Most investors do not realize and are usually shocked to learn that there broker only has an obligation to recommend “suitable” investments, and not to work in their client’s best interests. Currently, the fiduciary duty rule only applies to financial advisors (and brokers under certain circumstances).

Wells Fargo Broker Joseph DiRago Jr. Sanctioned for Unauthorized Trading

April 30, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) in an acceptance, waiver, and consent action (AWC) Wells Fargo Advisors, LLC (Wells Fargo) broker Joseph DiRago Jr. (DiRago) concerning allegations that between June 2011, and October 2012, while registered with Morgan Stanley & Co. LLC (Morgan Stanley), DiRago effected transactions exercising discretion without written authorization in one customer’s account in violation of NASD Conduct Rule 2510(b) and FINRA Rule 2010.

In addition, DiRago has been the subject of at least five customer complaints over the course of his career. These claims primarily involve claims of unsuitable investment recommendations and misrepresentations. All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. The number of complaints made by investors against DiRago is relatively large by industry standards. According to InvestmentNews, only about 12% of financial advisors have any type of disclosure event on their records. Brokers must disclose different types of events, not necessarily all of which are customer complaints. These disclosures can include IRS tax liens, judgments, and even criminal matters.

According to FINRA, NASD Conduct Rule 2510(b) provides that brokers cannot exercise any discretionary power in a customer’s account unless such customer has given prior written authorization and the account has been accepted by the firm as evidenced in writing by the member.

LPL Financial Terminates Charles Fackrell Over Securities Fraud Claims

March 12, 2015 | by Staff Attorney

LPL Financial LLC (LPL) has terminated its former broker Charles Fackrell (Fackrell), registered with The Financial Industry Regulatory Authority (FINRA), alleging that the broker engaged in unapproved private securities transactions (known in the industry as “selling away”) and also due to a felony arrest for obtaining property under false pretenses.

Fackrell entered the securities industry in 2007 and was registered with Morgan Stanley & Co., Incorporated. From July 2008 until December 2009, Fackrell was registered with SunTrust Investment Services, Inc. Thereafter, from December 2009, until June 2010, Fackrell was a broker with Wells Fargo Advisors, LLC.

According to news sources, Fackrell was arrested in January and faces charges of fraud that police now allege involve more than $500,000. In February Fackrell was served warrants and his bond was set at $2.2 million. News reports state that the victims were unsuspecting investors in Yadkinville and surrounding counties.

FINRA Bars Broker David Lavine Concerning Allegations of Outside Business Activities

February 12, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker David Lavine (Lavine) concerning allegations that Lavine engage in private securities transactions also known as “selling away.” FINRA Rule 8210 authorizes the regulator to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation.

In October 2014, FINRA alleged that it pursued an investigation into allegations that Lavine (i) exceeded the scope of an approved outside business activity and potentially engaged in an unapproved private securities transaction; and (ii) failed to timely disclose several reportable financial events. FINRA requested that Lavine provide documents and information on or before November 14, 2014. On December 2, 2014, FINRA stated that Lavine, through his counsel, requested an extension of time to respond but ultimately failed to provide the responsive documents and information and informed FINRA that he would not provide information at any time.

According to Lavine’s brokercheck his disclosed outside business activities include Angel Flight South Central and LAKAP, LLC. It is unclear at this time if FINRA’s investigation concerned Lavine’s participation in these enterprises.

FINRA Fines 10 Brokerage Firms $43.5 Million For Conflicts of Interests in Toys “R” Us IPO

January 16, 2015 | by Staff Attorney

The merry go-round of Wall Street fraud continues. After the housing crisis where Wall Street sold terrible home loans to investors we’ve arrived back to dot.com era frauds of selling favorable research. Enter the recent fine imposed by The Financial Industry Regulatory Authority (FINRA) that 10 of the largest brokerage firms were fined a total of $43.5 million for allowing their equity research analysts to solicit investment banking business by offering favorable research coverage in connection with the 2010 planned initial public offering of Toys “R” Us.

FINRA fines are as follows:

Barclays Capital Inc. – $5 million