According to a Financial Industry Regulatory Authority arbitration panel, Morgan Stanley & Co. (MS) must pay Banco Nacional de Mexico SA unit $4.5 million for allegedly letting funds from a family’s trust account be utilized for paying back third-party loans without authorization. The Mexican bank, also known as Banamex, was trustee to the account. It filed its securities arbitration case in 2012.
The trust was established in 2007 with proceeds from a property that members of a family had inherited and decided to sell. Banamex and the beneficiaries of the trust worked with a Morgan Stanley (MS) broker, who ran their accounts. The trust accounts were at a Morgan Stanley banking unit. They were set up in such a way that the assets were not supposed to be used as guarantees to pay third-party loans that another family member’s account had taken.
Morgan Stanley is accused of compelling the trust accounts to guarantee payment of a third-party loan without getting Banamex’s consent. According to the plaintiffs, the brokerage firm improperly guaranteed or recorded the trust assets for the relative, who did not belong to the trust.
The securities arbitration panel said that Morgan Stanley was negligent and engaged in negligent supervision. The damages are compensatory.
A spokesperson for Morgan Stanley said the broker-dealer was disappointed in the hearing’s outcome. The firm maintains that the evidence demonstrates that the head of the family pledged the trust accounts as collateral for loans. Banamex is a Citigroup Inc. (C) subsidiary.
In other FINRA arbitration news, the self-regulatory organization has extended the deadline for how long the SEC has to vote on its proposed measure that would restrict who qualifies as a public arbitrator to resolve investor disputes. The SEC had 45 days from when FINRA published the proposed rule in the Federal Register. Now, the deadline has been moved to October 1. The postponement provides the Commission with additional time to go over comment letters that were sent about the proposal.
The rule is supposed to deal with the perceived perception that bias may be a factor in arbitration panels that adjudicate claims between broker-dealers and investors. If approved, no one from the securities industry would be allowed to serve as a public arbitrator. Instead, these individuals could only serve on the panel in the role of nonpublic arbitrator. Anyone that has worked in the industry for at least 15 years would be permanently barred from serving.
At The SSEK Partners Group, our FINRA arbitration lawyers represent high net worth individuals and institutional investors to recouping their losses. Your best chances of getting back your investment fraud losses is to work with a securities law firm that knows how to help you.
Morgan Stanley must pay $4.5 million to Banamex: panel, Reuters, August 15, 2014
Finra delays decision on public arbitrators, Investment News, August 5, 2014
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