Morgan Stanley Ordered to Pay $70M for Tax-Reporting Errors
In its yearly regulatory filing, Morgan Stanley (MS) announced that it took a $70M charge because of tax-reporting mistakes made by its brokerage business from ’11 to ’16. The firm is talking to the Internal Revenue Service to settle any client tax underpayments. Morgan Stanley said that some of its wealth management clients that may have overpaid taxes as a result of these errors and they would be paid back.
The firm also announced that it might sustain a $221.3M loss because of a lawsuit brought by Salzburg, the Austrian state, over commodities derivatives and fixed-income transactions between ’05 and ’12. Salzburg claims that Morgan Stanley did not having the authority or ability to make such deals—a contention that the latter disputes.
Trading Firm Accused of Manipulating US Markets
According to a complaint brought by the US Securities and Exchange Commission, Avalon FA manipulated the US markets on hundreds of thousands of occasions, allegedly making over $21M in a layering scam. The regulator obtained an asset freeze against the Ukrainian trading company.
Layering is a scam that involves making orders but cancelling them after others have been lured into buying or selling stocks at prices that were artificially manipulated. The SEC also brought fraud charges against Nathan Fayyer, Avalon’s owner, and Sergey Putstelnik, who had an undisclosed controlling interest in Avalon.
The SEC also accused Avalon of making over $7M illicitly via a cross-market manipulation scam involving the purchase and sale of US stocks at a loss for the purpose of raising stock prices and profit from the artificial price. The traders used by Avalon were located in Asia and the US.
Meantime, the SEC is accusing Lek Securities and its owner Samuel Lek of facilitating Avalon’s scam by providing access to US markets, enhancing its trading technology to help Avalon’s trades, and approving the cross-market trading scam. Avalon was Lek Securities’ highest-producing customer for trading commissions, rebates, and fees.
Hedge Fund Accused of Fraud
The Consumer Financial Protection Bureau and New York Attorney General Eric Schneiderman are accusing RD Legal Capital of fraud that cost 9/11 responders, including firefighters and police officers, millions of dollars. According to the hedge fund fraud lawsuit, RD Legal Capital sometimes charged these individuals interest rates of over 250% for the financing of federal cash to cover sick workers’ medical care.
For example, according to The Wall Steet Journal, ex-NY City police officer Elmer Santiago borrowed $355K from RD Legal Capital fund affiliates to cover his medical expenses related to the 2001 terrorist attacks. At the time, he was living in his jeep. When the fund finally billed him—$860K— it was along with a 57% interest rate. Another severely disabled first responder reportedly was told to pay back RD Legal more than $63K after the firm gave him $35K just three months before. The lawsuit contends that the interest charged was over 250%.
Schneiderman and the Consumer Financial Protection Bureau contend that RD Legal lied about how much the 9/11 responders would be paid for what proved to be short-term loans. NY law caps interest rates for loans at 25%.
The hedge fund is also accused of bilking ex-NFL players who were seeking a $1B settlement for their head injuries that they sustained on the job.
Morgan Stanley gave some clients incorrect tax information, Reuters, February 27, 2017
The SEC Complaint in the Avalon, Lek Securities Case (PDF)
A.G. Schneiderman And Consumer Financial Protection Bureau Announce Lawsuit Against Rd Legal For Scamming 9/11 Heroes Out Of Millions Of Dollars In Compensation Funds, AG.NY.Gov,February 7, 2017