The White Law Group reviews the regulatory history of Morgan Stanley.
Morgan Stanley Background
Morgan Stanley (CRD#: 149777/SEC#: 801-70103,8-68191), based in Purchase, New York, is a dual registered broker dealer and investment advisory firm.
Morgan Stanley operates under the following names: CITIGROUP INSTITUTIONAL CONSULTING, SMITH BARNEY, PRIVATE PORTFOLIO GROUP, MORGAN STANLEY WEALTH MANAGEMENT, MORGAN STANLEY SMITH BARNEY LLC, GRAYSTONE CONSULTING, CONSULTING GROUP, among others according to its CRD.
According to its CRD/Broker report, Morgan Stanley, registered in 2009, has 173 disclosures on its record, including 62 regulatory actions and 111 arbitrations, among others.
A broker-dealer’s Central Registration Depository (CRD) record is a database maintained by the Financial Industry Regulatory Authority (FINRA) and is used to store and track information about individuals and firms involved in the securities industry.
Regulatory actions found on a broker-dealer’s CRD may include censures, fines, suspensions, and restitution, among others. They can have grave consequences for the firm’s profile and reputation.
The following is a review of FINRA and the SEC’s regulatory actions involving Morgan Stanley.
SEC Charged Morgan Stanley and Exec with Multi-year Fraud
January 12, 2024 – Morgan Stanley Settles Block Trading Charges for $249 Million
The Securities and Exchange Commission (SEC) filed charges against Morgan Stanley and its former equity syndicate desk head, Pawan Passi, for a multi-year fraud involving the disclosure of confidential information on block trading.
Morgan Stanley settled the charges by paying over $249 million, addressing allegations of improperly alerting favored institutional clients about significant blocks of private stock coming to the market. The SEC accused the wire house and Passi of breaching the trust of sellers by leaking non-public information about impending block trades to gain an advantage, violating federal securities laws.
The firm was ordered to pay approximately $138 million in disgorgement, about $28 million in prejudgment interest, and an $83 million civil penalty.
Unsuitable Investment Recommendations
November 23, 2022 – FINRA Hits Morgan Stanley for High-Risk Investments
FINRA censured Morgan Stanley Wealth Management and ordered it to pay $697,897, including a $200,000 fine and $497,897 in restitution, for allegedly failing to supervise nine brokers who made potentially unsuitable investment recommendations from January 2014 to December 2018.
The brokers reportedly made hundreds of unsuitable recommendations involving master limited partnerships and early-stage pharmaceutical companies to investors with moderate or conservative risk tolerances. The firm did not follow its own policy requiring brokers to submit a “Plan of Solicitation” justifying recommendations exceeding 60,000 shares of certain securities.
This failure resulted in eight investors losing a total of $1.6 million in a Chinese telecom business. The investigation was prompted by a review of an arbitration award related to one of Morgan Stanley’s clients.
SEC says Morgan Stanley Failed to Protect Customers’ Personal Information
September 20, 2022 – Morgan Stanley to pay $35M to Settle SEC Charges
The Securities and Exchange Commission (SEC) charged Morgan Stanley Smith Barney LLC for alleged failures to protect the personal identifying information of approximately 15 million customers over a five-year period.
The SEC found that since 2015, Morgan Stanley failed to properly dispose of devices containing customer information, hiring an inexperienced moving and storage company for data destruction.
The moving company allegedly sold thousands of Morgan Stanley devices, some with customer data, on an internet auction site. Morgan Stanley agreed to pay a $35 million penalty to settle the charges, acknowledging violations of the Safeguards and Disposal Rules under Regulation S-P.
More Supervisory Issues – SEC & FINRA Sanctions
December 30, 2020 – Morgan Stanley to pay Customers for Plan Overcharges
Morgan Stanley Smith Barney was sanctioned by FINRA for supervisory failures related to recommendations of 529 Savings Plans. The firm allegedly lacked a supervisory system from January 1, 2013, to June 30, 2018, for overseeing representatives’ recommendations regarding specific share classes of 529 savings plans.
According to FINRA, Morgan Stanley failed to provide adequate guidance to representatives and supervisors, neglecting the importance of considering share-class differences. The firm initiated a review of its supervisory systems, identified deficiencies, corrected them, and established a remediation plan. Morgan Stanley agreed to a censure and restitution of $1,460,518 plus interest for affected customers.
Failure to Supervise: Account Churning
August 12, 2020 – Morgan Stanley hit with $950,000 for Failure to Supervise
Morgan Stanley has been sanctioned by FINRA for alleged failures in supervising one of its brokers who engaged in account churning. The broker-dealer paid $175,000 in fines and was ordered to provide restitution of approximately $774,600.
The alleged violations occurred from January 2012 to December 2017, during which the firm allegedly failed to adequately review short-term trades recommended by a Morgan Stanley registered representative.
The representative suggested short-term trades in corporate bonds and preferred securities on numerous occasions, causing over $900,000 in losses for 10 clients. The firm agreed to the sanctions in a Letter of Acceptance, Waiver & Consent (AWC) without admitting or denying the allegations.
July 9, 2020 – Morgan Stanley Censured & Fined $875,000
Morgan Stanley has settled with FINRA for $875,000 over allegations of submitting inaccurate securities trading data. Between February 2014 and April 2017, the firm reportedly submitted at least 869 blue sheets with inaccuracies to FINRA and the SEC, misreporting data on approximately 156,678 options transactions.
FINRA discovered the errors in late 2016, initially identifying inconsistencies with customer account statements. The firm attributed the inaccuracies to human error and later identified two coding issues. The settlement involves a censure and fine, and the firm agreed to these terms without admitting or denying the findings.
July 13, 2018 – Morgan Stanley Censured & Fined $3.6 Million
Morgan Stanley Smith Barney paid a $3.6 million penalty for allegedly failing to protect client accounts. The firm’s lack of adequate policies and procedures reportedly contributed to its failure to detect or prevent Barry F. Connell, one of its advisory representatives, from allegedly misusing or misappropriating approximately $7 million from four advisory clients’ accounts through approximately 110 unauthorized transactions over a year.
Without admitting or denying the findings, the brokerage firm consented to the SEC’s order, which includes the penalty, a censure, a cease-and-desist order, and undertakings related to the firm’s policies and procedures.
Connell was arrested in February 2017 on charges of allegedly stealing $5 million from his clients, for 15 counts of fraud and embezzlement.
Customer Complaints and Broker Misconduct
All broker-dealers have a responsibility to adequately supervise its employees. They must ensure the necessary procedures and systems to detect misconduct. There have been numerous cases of registered representatives employed by Morgan Stanley who were allegedly involved in broker misconduct and fraudulent activities.
Ex- Morgan Stanley Broker Charged with Fraud
January 24, 2024 – Jesus Rodriguez Charged with Defrauding Advisory Clients
The SEC has charged former financial advisor Jesus Rodriguez, previously employed at Morgan Stanley, with defrauding ten clients by orchestrating over 250 unauthorized disbursements totaling more than $3.475 million.
Rodriguez allegedly misappropriated funds to cover personal expenses, incurring debt secured by clients’ securities portfolios.
The complaint details deceptive conduct, including fabricating authorizations and providing false information to conceal the scheme. The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and a civil penalty.
Ponzi Scheme Allegations – Customer Complaints
April 19, 2022 – Financial Advisor Shawn Good Barred after Allegations of Running Ponzi Scheme
Financial advisor Shawn Good from Wilmington, NC, was charged by the Securities and Exchange Commission (SEC) for allegedly running a multimillion-dollar Ponzi scheme. The complaint states that, from 2012 to at least February 2022, Good allegedly deceived five clients at Morgan Stanley, including retirees and a single mother, by falsely claiming to invest their money in low-risk vehicles like tax-free bonds and land-development projects.
Instead, he reportedly used the funds to repay other victims and cover personal expenses, such as Tesla payments, international travel, and credit card bills totaling around $800,000.
FINRA has barred Good from the securities industry. The SEC was seeking injunctive relief, an asset freeze, an accounting, disgorgement, and civil penalties.
NBA Players Sue Morgan Stanley for Fraud
February 11, 2022 – Broker Darryl Cohen Allegedly Defrauded NBA Players
Financial advisor Darryl Cohen has been barred by FINRA amid allegations of misappropriating money from professional athlete clients.
Cohen, formerly part of Morgan Stanley’s Global Sports Entertainment Group, faced investigations for possible conversion and improper use of customer funds. Several customer lawsuits were filed, claiming Cohen mismanaged accounts, engaged in unauthorized securities trading through third-party loans, and used an unapproved platform for inappropriate communications. The frim terminated Cohen in March 2021.
Two former NBA players, Chandler Parsons and Courtney Lee, are suing the firm for alleged unauthorized payments from their accounts between 2017 and 2019, seeking $5 million in damages. Cohen has nine customer complaints on his broker record, with four pending, according to FINRA.
Excessive Trading and Excessive Customer Complaints
Broker Michael Paesano of New York, NY, faces allegations of excessively trading accounts, with 25 customer complaints filed against him between 2008 and 2022.
The most recent complaints reportedly focus on excessive trading from July 2014 to December 2016. Paesano was allegedly discharged by the firm in 2017 over concerns about his exercise of discretion and investment strategy. He is not currently registered as a broker, according to FINRA.
When brokers violate securities laws, such as making unsuitable investments, the brokerage firm they are working with may be liable for investment losses through FINRA Arbitration.
Boston Brokers charged with Fraud
January 31, 2018 – 2 Former Morgan Stanley Brokers Plead Guilty to Fraud
Two former Morgan Stanley brokers, James Polese and Cornelius Peterson reportedly pleaded guilty to fraud charges after being accused of misappropriating $500,000 from two client accounts between 2014 and 2017.
The brokers allegedly used the funds for a wind farm project, other investments, and personal expenses without the clients’ knowledge or consent. Prosecutors have charged both individuals with conspiracy, investment advisor fraud, and bank fraud, with Polese facing additional counts of aggravated identity theft.
The firm reportedly fired Polese and Peterson in June 2022 upon discovering the alleged fraud.
National Securities Attorneys
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.
The Financial Industry Regulatory Authority (FINRA) operates the largest dispute resolution forum in the securities industry. In fact, FINRA Dispute Resolution is the forum for all disputes between investors, brokerage firms and individual brokers. This is because most brokerage firms have mandatory arbitration clauses in their account agreements that require investors to file their disputes through FINRA.
The White Law Group represents investors in all types of securities related claims, including claims involving securities fraud, broker misrepresentation, churning, unsuitable investments, selling away, and unauthorized trading, among many others.
With over 30 years of securities law experience, The White Law Group has the expertise to help investors who were defrauded by their financial advisors. For more information, please visit our website, www.whitesecuritieslaw.com.
If you have suffered losses investing with Morgan Stanley and would like to speak with a securities attorney, please call The White Law Group at 888-637-5510.
Tags: broker-dealer review, FINRA, Morgan Stanley, SEC sanctions Last modified: February 2, 2024