Why Were Two Former Morgan Stanley Smith Barney Brokers Not Named As Defendants in Securities Lawsuit by State Regulators Over $6M Now Missing From Wisconsin Funeral Trust?

Wisconsin regulators are suing Wisconsin Funeral Directors Association Inc. and Fiduciary Partners Inc. for allegedly improperly investing the money from a $48 million Wisconsin Funeral Trust. With a possible long-term deficit of $21 million, close to $6 million in investor money has already been lost. However, our stockbroker fraud law firm wants to know why two former Morgan Stanley Smith Barney brokers-brothers Michael Hull and Patrick Hull-are not defendants in this case. The two brothers managed the trust until earlier this month, when a circuit court judge assigned a receiver to take charge of liquidating the fund. They now run bluepoint Investment Council, LLC.

The trust is funded by about 10,500 prepaid contracts. According to state Department of Justice officials, customers who bought prepaid funeral policy plans because they were under the impression that their money would be placed in CDs, government bonds, and low risk investments and that they would get a guaranteed, modest return rate. Instead, the trust ended up losing millions in risky investments. (The Department of Financial Institutions is now ordering a securities enforcement action after it concluded that the funds, which were in the trust, were invested in a manner that violated state law.) Fiduciary Partners Trust, the trust’s trustee, has said that it was never involved in how the trust’s investments were managed or marketed and that this was the job of the Wisconsin Funeral Directors Association and the investment management firms.

“The information which has been reported leaves us with more questions than answers as to Morgan Stanley and its former brokers,” said stockbroker fraud lawyer William Shepherd. “In any event, any claims against the firm and/or brokers would likely be excluded from court action by the trust because of a mandatory FINRA arbitration agreement.”

Michael Hull has said that there are no statements or allegations raising questions about the way he and his brother managed the Wisconsin fund and he is not under investigation by the state. Michael also says that he was let go by Morgan Stanley Smith Barney earlier this year when the firm discovered that he intended to establish his own independent registered investment advisory firm. (According to his record with FINRA, Michael was let go in the wake of allegations involving possible dealings with outside investments that MSSB had not approved.)

The Wisconsin securities case accuses the defendants of dealing with trust (and its assets) as if it were a hedge fund and improperly putting depositors’ money in a portfolio of risky, illiquid investments. The regulators contend that the portfolio is not in line with the goals of the trust, which is to give investors a secure, low, return rate that is 1% greater than the average 3-year CD rate in the state.

$6M in investor funds goes missing from trust, Investment News, September 23, 2012
Receiver appointed to take over funeral directors association, Milwaukee-Wisconsin Journal Sentinel, September 14, 2012

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Morgan Stanley May Have To Shut Down Brokerage Offices, Say Sources, Stockbroker Fraud Blog, August 8, 2012
Morgan Stanley Smith Barney Ordered by FINRA Arbitration Panel to Pay $5M Over Allegedly False Promises Made To Brokers Recruited from UBS AG, Stockbroker Fraud Blog, June 22, 2012

Ex-Morgan Stanley Smith Barney Broker Settles with FINRA for Allegedly Failing to Notify Firm of Previous Arrest, Institutional Investor Securities Blog, June 16, 2012

Morgan Stanley Sued by MetLife for Securities Fraud Over $757 Million in Residential Mortgage-Backed Securities, Institutional Investor Securities Blog, April 28, 2012