Articles Tagged with Morgan Stanley

A Former Morgan Stanley (MS) broker who was barred by the Financial Industry Regulatory Authority (FINRA) last year has pleaded guilty to defrauding his clients of hundreds of thousands of dollars. Elias Herbert Hafen was a registered Morgan Stanley rep. from 2009 until 2018 and then briefly went to work for Wells Fargo Clearing Services. According to his BrokerCheck record, Wells Fargo (WFC) fired him after just several months because he had financial agreements with clients that the firm never approved.

A news release of Hafen’s guilty plea on Justice.gov states that between 2013 and 2018, Hafen defrauded at least 11 financial advisory clients by fooling them into thinking he was able to access a high yield investment fund that came with guaranteed investment returns. This fund, however, was not affiliated with the investment bank where Hafen was a registered broker. In fact, it did not exist.

Because of Hafen’s investment advice, a number of his clients moved hundreds of thousands of dollars to his own bank account, from where he was supposed to invest in the fund. Instead, he generated fake bank statements using the name of an investment company that didn’t exist and, rather than use investors’ funds as intended, Hafen spent their money to fund his luxury lifestyle.

Over the last several months, it has come to light that brokers from some of the largest firms on Wall Street firms sold Collateral Yield Investment Strategies (CYES Strategies) that may not have been suitable for many investors, causing them to suffer devastating losses. Offered through registered investment adviser Harvest Volatility Management, LLC, the CYES Strategy is a type of Yield Investment Strategy (YES Strategy), only even more risky and complex.

YES Strategy Investments

Reportedly, UBS (UBS), Credit Suisse (CS), Bank of America’s (BAC) Merrill Lynch, Morgan Stanley (MS), and other brokerage firms brokers sold YES Strategies to many wealthy investors, touting the approach as safe way to increase returns on conservative portfolios. These were supposed to be small returns at a low risk, using a strategic approach that involved the purchasing and selling of SPX index options spreads.

David Strnad, a longtime broker, has been suspended by the Financial Industry Regulatory Authority (FINRA) for 18 months. According to his BrokerCheck record, in 2016, the daughter of a client accused Strnad of churning in her father’s account while he was a registered Morgan Stanley representative. Following the allegations, FINRA opened a probe into the matter.

The self-regulatory authority (FINRA) found that Strnad made over 270 trades involving CDs in the account of one elderly customer between 2013 and 2015. While the client had given the former Morgan Stanley broker permission to purchase the CDs, Strnad allegedly exceeded the authority granted to him when he sold the CDs before they matured and used the money made from those transactions to purchase more CDs for the client.

As a result, said FINRA, the client ended up paying nearly $4300 commissions that were not warranted. Morgan Stanley has since paid that money back to the client.

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded $519,000 to Stephen and Brenda Balock in their investor fraud claim against Morgan Stanley (MS). The couple contends that that one of the firm’s brokers, Tim J. Prouty, placed their funds in investments that were complex and inappropriate for them, causing them to lose money in eight accounts between 2012 and 2015. They filed their claim against Morgan Stanley in 2016.

The Balocks began working with Prouty after Stephen’s employer, the Public Service Co. of New Mexico, compelled him into early retirement due to downsizing. He had never worked with a broker before then.

The couple wanted to invest in certificates of deposit. Instead, Prouty placed them in a Morgan Stanley investment advisory program that involved more complex investments, such as options contracts, derivates, junk bonds, and exchange-traded funds. In their investor claim against Morgan Stanley, the Balocks made a number of allegations, including the following:

A Financial Industry Regulatory Authority (FINRA) arbitration panel is ordering Morgan Stanley (MS) to pay a claimant $454,813 for retirement fund mismanagement. The claimant is The Carpenter Law Firm Defined Benefit Plan. The Carpenter Law Firm is based in Iowa.

According to the FINRA award, the law firm contends that Morgan Stanley did not put together an investment strategy that was appropriate for its defined benefit plan. This allegedly led to “excessive cash and a concentration” in just one area of the S & P.

InvestmentNews reports that the mismanagement that the Carpenter Law Firm is claiming occurred was first noticed in 2017 when one of the firm’s attorneys became concerned that his retirement portfolio may not have been properly allocated over the past ten years. The lawyer handed his portfolio over to Morgan Stanley broker, Michael Lee Canney, in 2007. Among the concerns was that market-timing had caused the broker to be “out of the market in cash” during both the account’s beginning and end. Also, over half of the portfolio was made up of closed-end funds that were purchased from Morgan Stanley.

Morgan Stanley (MS) has agreed to a $150M settlement with the California State Teachers’ Retirement System (CalSTRS) and the California Public Employees’ Retirement System (CalPERS) to resolve claims that it misled investors about the risks involved in mortgage-backed securities, which both pension funds purchased from 2003 to 2007. CalSTRS and CalPERS lost millions of dollars from investing in these MBSs prior to the 2008 financial crisis.

In a news release, California Attorney General Xavier Becerra accused Morgan Stanley of placing profits over the pension funds’ public employees and teachers when the firm didn’t fully disclose the MBSs’ risks. These complex investments package together thousands of mortgage loans, and not all of the loans share the same level of quality.

Mr. Becerra’s office, which conducted a probe into Morgan Stanley’s handling of MBS sales, found that the brokerage firm did not “accurately” portray many of the underlying mortgages’ “true” traits. Meanwhile, the broker-dealer allegedly overstated the quality of certain subprime loans, including those from New Century Financial, which eventually went bankrupt. Morgan Stanley is accused of knowing about these misrepresentations but doing nothing to remedy the matter.

The Puerto Rico Government Employees and Judiciary Retirement Systems Administration, a pension plan for retirees of the U.S. territory’s government, has filed a proposed securities class action in federal court against Bank of America (BAC), Goldman Sachs (GS), Citigroup (C), Barclays Capital, Inc. (BARC), BNP Paribas Securities Corp., Bank of America Securities, Credit Suisse Securities, FTN Financial Securities, Deutsche Bank Securities, JP Morgan Securities, Morgan Stanley (MS), Merrill Lynch, Pierce, Fenner & Smith, and UBS Securities. The retirement fund is accusing the defendants of rigging bond prices to keep the prices up on Freddie Mac and Fannie Mae bonds.

Freddie and Fannie, both U.S. government-sponsored entities (GSEs), offer bonds to raise money for loans. According to the Puerto Rico pension plan’s bond fraud case, the trading desks of the various banks worked together to artificially raise the prices of the GSE bonds when the market took a hit after the 2008 financial crisis and Fannie and Freddie started reducing the number of bonds issued for sale. This decrease led to a loss in profits for those underwriting and trading in Fannie Mae and Freddie Mac bonds. The plaintiff contends that instead of the banks opting to lower the difference between their purchasing and selling prices and competing for clients, they worked together to fix the bond prices so they could “maximize” their profits at the expense of customers.

The Puerto Rico retirement plan’s complaint comes weeks after another proposed class action was brought by two other pension funds also accusing banks of rigging the price of GSE bonds. The pension fund plaintiffs in that fraud case are the Trust and Sheet Metal Workers’ Local 19 Pension Fund and the Dallas Area Rapid Transit Employees’ Defined Benefit Retirement Plan. The defendants are Bank of America NA, Barclays Capital, Wells Fargo Securities, LLC, Citigroup Global Markets, Inc., BNP Paribas Securities Corp., Deutsche Bank Securities, JPMorgan Securities, HSBS Bank Plc, HSBC Securities, JP Morgan Chase Bank, TD Securities, Nomura Securities International Inc., and Merrill Lynch, Pierce, Fenner & Smith.

Daniel Todd Levine, a former Morgan Stanley (MS) broker, has been barred by the Financial Industry Regulatory Authority after he failed to cooperate in a probe into allegations that he may have taken part in outside business activities that he did not disclose to the broker-dealer while he worked for the firm. Levine was a Morgan Stanley broker based in Denver, Colorado between 2013 and July 2018 when he stepped down. His next employer was First Financial Equity Corp., but that brokerage firm fired him a few weeks later after he did not notify them about the FINRA investigation.

According to Levine’s BrokerCheck record, he previously worked with Prudential Securities, Merrill Lynch, and UBS (UBS). He was employed in the securities industry for over 20 years.

A number of other former Morgan Stanley brokers have recently made news headlines over allegations of broker fraud. Last month, FINRA announced that it had filed a lawsuit against Ami Forte, who is accused of making unauthorized trades in the account of now deceased Home Shopping Network co-founder Roy M. Speer. In November, former Morgan Stanley financial adviser James Polese was sentenced to five years behind bars after pleading guilty to defrauding customers of over $1M.

Legend Securities Ordered to Pay Client For Churning His Funds 

A Financial Industry Regulatory Authority (FINRA) panel has awarded Herbert W. Voss $1.075M in his securities fraud case against Legend Securities Inc., its ex-chief compliance officer Frank Philip Fusco, and former Legend broker Danard Warthen Brown. Legend is no longer in operation and was expelled by the self-regulatory authority (SRO) in 2012.

Voss reportedly lost $375,000 while Legend was his brokerage firm. Of the more than $1M award granted to Voss, $700K is for punitive damages. His securities fraud lawyer contends that punitive damages were warranted because of how much turnover took place in Voss’s account.

For the third time this month, The Financial Industry Regulatory Authority  has announced that it has barred yet another Morgan Stanley (MS) broker. The brokerage firm had fired financial adviser Bruce Plyer in late 2016 in the wake of allegations that he executed trades in a client’s account without authorization. Now, the self-regulatory organization is barring Plyer after he failed to appear and give testimony into FINRA’s probe into the matter.

Plyer has accepted and consented to FINRA’s findings, but he is not admitting to or denying any of them.

After being let go from Morgan Stanley, he was registered for a short time with International Assets Advisory until he left the industry early last year.

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