Morgan Stanley

FINRA Cases: Ex-Morgan Stanley Broker and Former Western International Securities Broker Are Barred, Questar Capital Ordered to Pay $797K Restitution Over Mutual Fund Sales, and Morgan Stanley Smith Barney is Accused of Not Sending Millions of Margin Disclosures

Published on: January 16, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Two Brokers Barred After Not Appearing at FINRA Hearings

Guillermo Valladolid, an ex-Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority. According to the regulator, Valladolid did not show up at a hearing into whether, according to InvestmentNews, he “sold investments away from his employer” and neglected to disclose certain outside business activities.

Morgan Stanley terminated Vallodolid’s employment. Previous to that he worked with Merrill Lynch.

In a different FINRA case, the regulator barred another broker, Bradley C. Mascho, also after he did not appear at his hearing. Some of Mascho’s activities while at Western International Securities had come under question. The firm fired him last month, which is also when the US Securities and Exchange Commission filed fraud charges against Mascho and Dawn Bennett of the Bennett Group Financial and DJP Holdings. Mascho was CFO of the latter.

Puerto Rico Bond Fraud Cases Name Former Morgan Stanley Broker Angel Aquino-Velez

Published on: October 2, 2017 | by Shepherd Smith Edwards & Kantas, LLP

According to InvestmentNews, there are six pending FINRA arbitration claims against Morgan Stanley (MS) and its former broker Angel Aquino-Velez (Aquino-Velez) concerning his selling Puerto Rico investments. The claimants are alleging misrepresentation and unsuitability regarding the sale of Puerto Rico closed-end funds and bonds they purchased through Aquino-Velez, who is based in Miami, and the brokerage firm.

InvestmentNews also reports that according to FINRA’s BrokerCheck database, Morgan Stanley has already resolved four FINRA arbitration claims valued at $2.4 million related to Aquino-Velez and Puerto Rico municipal bond investments. Aquino-Velez, who left Morgan Stanley a few months ago, was recently selling Puerto Rico COFINA bonds, which are securities backed by the U.S. territory’s sales tax revenue. Prior to working at Morgan Stanley, Aquino-Velez was with UBS Financial Services (UBS) and Merrill Lynch (BAC).

Puerto Rico Bond Fraud Losses
At Shepherd Smith Edwards and Kantas, LTD LLP, our Puerto Rico bond fraud lawyers have been working hard these past four years to help investors who sustained serious losses when the island’s municipal bonds began to fall in value in 2013. For many of our clients, their portfolios should not have been so heavily concentrated in Puerto Rico bond funds and bonds, if at all, except that they were given bad investment advice. Many investors lost everything.
Continue Reading ›

Morgan Stanley to Pay $13M Over Improper Supervision of Unit Investment Trust Sales

Published on: September 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA is ordering Morgan Stanley Smith Barney LLC (MS) to pay about $9.8M in restitution to and a $3.25M fine for purportedly not properly supervising hundreds of financial representatives who sold short-term trades of UITs. The firm settled without denying or admitting to the regulator’s charges.

According to the self-regulatory organization, from 2/2012 through 6/2015, the brokerage firm’s representatives effected short-term UIT rollovers, including a number of them more than 100 days prior to maturity, in customer accounts. FINRA said that the firm did not properly supervise these reps, when they engaged in the UIT sales, nor did it properly train them regarding the investments. It also purportedly failed to give supervisors adequate guidance about how to study transactions for signs of unsuitable short-term trading. Morgan Stanley is accused of failing to put into effect a system “adequate” enough to identify short-term UIT rollovers and of not providing supervisory assessment for UIT rollovers before execution.

UITs
Unit investment trusts are investment companies that offer units in a securities of a portfolio. They are subject to termination on a certain maturity date, usually after 15 months or 24 months. They typically come with certain fees, including a creation fee and a deferred sales charge. According to FINRA, when a new UIT compels a customer to be pay higher sales charges over time, this could be a red flag indicating suitability issues.

Ex-Morgan Stanley Broker Pleads Not Guilty to Insider Trading

Published on: September 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Michael Siva, a former Morgan Stanley broker (MS), has pleaded not guilty to criminal charges accusing him of insider trading. Siva is one of several people charged over their alleged participation in a group of “tipping chains” and trading on tips about upcoming acquisitions and mergers. The information was provided by Bank of America (BAC) consultant Daniel Rivas. Siva is said to have gotten the tips from the James Moodhe, who is the father of Rivas’ girlfriend.

Rivas and Moodhe have both pleaded guilty to the criminal charges accusing them of insider trading. They are cooperating with the government’s probe.

Moodhe is said to have shared Rivas’s tips with Siva from at least 2015 up through earlier this year. Siva allegedly used the information so he could make successful trades for clients as well as for himself. Moodhe and Siva allegedly met at eating places outside NYC during which time the former would read details about upcoming deals to Siva, including the value of the deals and when news about them was expected to go public. The two men allegedly made over $3M trading prior to and after the announcement of the deals.
Continue Reading ›

Securities Cases: FINRA Fines and Suspends Ex-Morgan Stanley Broker For Trying to Settle Without Firm Authorization, SEC Accuses Connecticut Financial Representative of Elder Financial Fraud and Freezes Assets of Ex-Colorado Broker for Allegedly Stealing Investor Funds

Published on: August 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

FINRA Fines Ex-Morgan Stanley Broker, Issues 15-Day Suspension

The Financial Industry Regulatory Authority has fined an ex-Morgan Stanley (MS) broker $10K and ordered him to serve a 15-day suspension after he allegedly tried to resolve a client’s complaint without the firm’s consent. The regulator is charging Lewis H. Robinson, who now works with BB & T Securities in Florida, with violating Rule 2010. The rule mandates that brokers satisfy “high standards” as they pertain to commercial honor and principles of trade.

According to FINRA, Robinson wrote $12,203 in checks to resolve three complaints made by the client. Advisor Hub reports that Robinson said that he notified Morgan Stanley as soon as the client noticed that the account was overcharged a higher commission rate than what had been agreed upon but that the firm refused to give a refund because the allegedly mistaken excess fee was charged too long ago.

Securities Cases: Bank of America and Deutsche Bank Settle Agency Bond Rigging Litigation for $65.5M & Pension Funds Sue Citigroup, JP Morgan, and Other Big Banks Over Stock Lending Market Rigging Allegations

Published on: August 25, 2017 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court in Manhattan, preliminary settlements have been submitted in which Deutsche Bank (DB) will pay $48.5M and Bank of America (BAC) will pay $17M to resolve investor lawsuits accusing them of manipulating the agency bond market for years. A judge must still approve the settlements.

Despite settling, both banks maintain they did not engage in any wrongdoing. The lead plaintiff investors include the Sheet Metal Workers Pension Plan of Northern California and the Iron Workers Pension Plan of Western Pennsylvania, and KBC Asset Management NV.

According to court papers and as reported by Reuters, Bank of America and Deutsche Bank are two of the 10 banks accused of rigging the $9 trillion agency bond market for supranational, sub-sovereign and agency bonds, also known as SSA bonds. The plaintiffs contend that from 2005 to 2015 the banks shared price information with one another, worked as a “super-desk” together, and allowed traders to coordinate strategies in the name of profit. Meantime, customers had to accept bond prices that were unfair to them.

Massachusetts Regulator Galvin Investigates Whether Exchanges Are Giving Kickbacks to Brokers for Making Institutional Investor Trades

Published on: August 18, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Massachusetts Secretary of the Commonwealth William Galvin is probing whether there are brokers who are getting paid kickbacks by exchanges in return for investor trades. The investigation comes in the wake of an op-ed article published in The New York Times last month alleging that there are financial representatives who have been sending orders to specific exchanges for these kickbacks, referred to as “rebates,” even if it means poorer results for their institutional investors.

The op-ed was written by Yale Law Professor Jonathan Macey and Yale University Chief Investment Officer David Swensen. Already, the state regulator has sent inquiry letters to Morgan Stanley & Co. (MS), E*TRADE Securities, Charles Schwab & Co. (SCHW), and Fidelity Brokerage Services LLC.

According to the article, because of these “rebates,” brokers are frequently selecting less favorable trades for their institutional investors clients to use these exchanges. If this is true, then it would be distressing considering that institutional brokers are legally bound to make trades on the exchange that has the terms that are most favorable for a client. Failure to do so could be grounds for a securities case. Meantime, it is supposed to be up to the exchanges, all 12 of them, to compete to provide the best trading opportunities.

$5M Insider Trading Case Leads to Criminal Arrests

Published on: August 17, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has brought insider trading case charges against seven people who made millions of dollars while insider trading on dozens of upcoming acquisitions and mergers involving 30 corporate deals. The regulator’s complaint contends that Daniel Rivas, who used to be a bank IT employee, misused the access he had to a computer system by tipping four people with information that they then used to trade. Some of the those whom Rivas tipped allegedly also tipped other people, who tipped others, too.

InvestmentNews identified the bank that Rivas worked for at the time of the misconduct as Bank of America (BAC). (Bank of America Merrill Lynch later fired Rivas, who was then hired by RBC Capital Markets. In the wake of the insider trading allegations against him, Rivas was suspended by RBC.)

Rivas often tipped James Moodhe, who is the father of his girlfriend, using handwritten notes. Moodhe made approximately $2M from trading on the tips and shared the information with financial adviser Michael Siva, whom InvestmentNews identifies as a former Morgan Stanley (MS) broker.

SEC Investigates Morgan Stanley and Barclays Bankers Over Puerto Rico Bond Sales

Published on: July 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Barclays (BARC) and Morgan Stanley (MS) were underwriters when the island sold $3.5 billion of bonds in 2014. According to Bloomberg, brokerage firm records submitted to the Financial Industry Regulatory Authority (“FINRA”) indicate that the U.S. Securities & Exchange Commission’s (“SEC”) staff is recommending that the SEC file an enforcement case against Barclays bankers James Henn and Luis Alfaro. The two men are under investigation for allegedly violating fair dealing in selling Puerto Rico bonds. They are also under investigation for alleged violations of securities rules and municipal bond rules as they pertain to misrepresentation, deception and fraud related to the securities.

Additionally, Bloomberg reports the SEC’s staff wants to issue a sanction against Morgan Stanley Managing Director Charles Visconsi and his ex-colleague Jorge Irizarry over disclosures that Puerto Rico made in documents that were sent to investors. The staff is interested in whether the broker-dealer adequately examined representations that were made by the island’s government. Visconsi and Irizarry reportedly have not been accused of any intentional misconduct.

In other Puerto Rico bond fraud news, the Puerto Rico Electric Power Authority (“PREPA”) has joined the island in filing bankruptcy protection. PREPA is currently overburdened with $9 billion of debt.

Morgan Stanley to Pay Massachusetts $1M to Settle Charges Alleging Unethical Sales Contests Involving Brokerage Customers

Published on: April 12, 2017 | by Shepherd Smith Edwards & Kantas, LLP

To settle charges over a high-pressure sales contest involving its financial advisers and brokerage clients, Morgan Stanley (MS) will pay $1 million to Massachusetts Secretary of the Commonwealth William Galvin. By settling, the firm did not deny or admit to the charges. It must, however, reassess its sales contest policies and notify the state of what is included in them, as well as what changes it might make in the wake of this review.

It was last year that Galvin charged the broker-dealer for cross selling and encouraging wealthy clients to borrow against their brokerage accounts. He also accused senior Morgan Stanley staff of knowing about the contest, determining that it violated the firm’s own internal policies (in addition to Massachusetts securities rules), but yet allowing the contest to continue for a few more months. It was only then that the firm’s Compliance and Risk decided that the contest was “impermissible.”

The program, which also involved a similar contest in Rhode Island, ran between ’14 and ’15. 30 financial advisers at five Morgan Stanley offices participated. The financial representatives are accused of persuading investors to set up new lending accounts. The broker-dealer purportedly rewarded them with bigger “business development allowances” when their efforts were successful. Advisers were given $1K for every 10 loan accounts that were opened, $3K for every 20 accounts, and $5K for every 30 accounts.