Morgan Stanley To Pay Over $949K For Inadequate Supervision

Morgan Stanley Settlement Includes FINRA Fine and Investor Restitution

According to the Financial Industry Regulatory Authority (FINRA), Morgan Stanley Wealth Management has consented to pay a $175K fine and more than $774K in restitution for allegedly failing to supervise its former broker Kevin Gunnip.

The Texas-based financial representative is accused of excessively trading in preferred securities and corporate bonds over five years, causing 10 customers to lose more than $900K.

Gunnip resigned as a Morgan Stanley broker in 2018 after spending his entire 22-year career with the firm. FINRA later barred Gunnip after he refused to cooperate in its probe into the allegations against him.

Our stockbroker fraud lawyers are looking into investor claims involving Gunnip and other Morgan Stanley representatives accused of negligence or broker misconduct. Contact SSEK Law Firm today.

Broker-Dealer Allegedly Ignored Hundreds of Red Flags Involving Gunnip

The SRO’s case with Morgan Stanley Wealth Management comes after the firm’s alleged failure to appropriately respond to hundreds of alerts, as well as a compliance review that indicated Gunnip may have been costing its customers more money than he was making them.

According to AdvisorHub, instead, the broker-dealer merely reached out to those affected to see if they were “satisfied” and allowed the excessive trading by Gunnip to go on. FINRA found that the firm didn’t do enough, including failing to reassess whether the trades that he was making to customers were unsuitable for their portfolio, risk tolerance levels, or investment goals. Morgan Stanley is not admitting to or denying the findings.

The restitution will go to eight of the investors that were harmed by Gunnip’s allegedly excessive trading. The other two customers already settled with the firm.

Even after Morgan Stanley instructed Kevin Gunnip in early 2016 to cease short-term trading, he allegedly kept recommending this strategy from 6/2016 through 7/2017.

According to the former Morgan Stanley financial advisor’s BrokerCheck record, three customer disputes involving Gunnip have resulted in settlements, including two alleging unsuitable investments that were settled for $150K and $145K, respectively, and one claiming excessive trading that was resolved for $614K.

What Is Excessive Trading?

Also known as churning, excessive trading typically involves a stockbroker trading too much in a customer’s account, beyond what is reasonable for their investment goals and risk tolerance level, in order to earn commissions. This can cause significant losses for the investor while enriching the broker and their firm.

Excessive trading may be grounds not just for a broker fraud case, but also for breach of fiduciary duty and conflict of interest claims. It also may be a reason for pursuing a failure to supervise claim against the registered representative’s broker-dealer for not identifying, preventing, or stopping the churning from happening.

Unfortunately, excessive trading happens all the time, which is why broker-dealers need to have the systems and supervisory mechanisms in place to protect investors from harm.

Other Morgan Stanley Brokers Have Come Under Scrutiny for Excessive Trading

Kevin Gunnip is not the only former Morgan Stanley financial representative recently accused of trading too much in customers’ accounts. Last month, ex-Morgan Stanley broker Michael Frank Paesano was accused by one customer of making too many trades. Over his career, Paesano has also been the subject of over 20 customer complaints

In October, Massachusetts Secretary of the Commonwealth William Galvin ordered Morgan Stanley to pay $382K for failing to supervise ex-broker Justin Amaral, who is now also barred by FINRA. At least three investors collectively lost $929K.

Contact our securities fraud law firm today for your free consultation. Our attorneys at SSEK Law represent investors nationwide against the firms and their brokers whose negligence and/or wrongful actions caused them losses.