September 19, 2011

Morgan Stanley Smith Barney Employee Fined and Suspended by FINRA Over Unauthorized Signatures

The Financial Industry Regulatory Authority has imposed a 60-day suspension on Carmela L. Knieriem, a former Morgan Stanley Smith Barney female employee over allegations that while employed by the financial firm, she signed other employees’ signatures without obtaining the required approvals and authorizations. FINRA is also fining Knierem $5,000. While she has submitted a Letter of Acceptance, Waiver and Consent to settle the charges, Knierem is not denying or admitting to the findings.

According to Forbes.com, Between November 2009 and October 14, 2010, Knieriem was associated with the financial firm’s Rancho Bernardo Branch, where she was tasked with providing branch managers, financial advisers, and other employees with administrative support. Part of her job was to prepare specific internal administrative forms related to the processing and documenting of verbal requests, known as “Verbal Forms,” that were made by customers.

FINRA says that when Knieriem made the unauthorized signatures when preparing these Verbal Forms she violated FINRA Rule 2010 10 times. The SRO contends that in six instances, at the request of the financial advisor EP, she prepared an instruction form documenting a client’s verbal request for journal funds between the client’s accounts, the transfer of money from a client’s account, the release of account statements to a third party, and the issuance of a $75,397.22 check from the customer’s account. Knieriem also is said to have followed a financial advisor GT’s request to prepare an instruction form for a client’s verbal request that a stop payment be placed on one of his checks. She also followed the request of a financial adviser CL, who asked her to prepare an instruction form to issue a $95.62 for a client. Also, FINRA says that branch manager RL asked her to prepare an instruction form to journal funds between accounts.

Morgan Stanley also conducted its own investigation into the matter. Knieriem has since voluntarily left the financial firm.

Shepherd Smith Edwards & Kantas LTD LLP founder and stockbroker fraud lawyer Bill Shepherd said: “The only surprise here would be if she kept her job or if any other firm would hire her. Every licensed securities person knows this is a very serious violation. Brokers at large firms manage tens of millions, and often hundreds of millions, of dollars. Those who violate the rules in this manner do not belong in that position. Moreover “uttering a forgery” is not just a rule violation, it is a crime even if there was no financial harm. The only legal defense would be if the person whose name was signed specifically gave her permission and was authorized to do so.”

Shepherd Smith Edwards and Kantas
Our stockbroker fraud law firm is dedicated to helping investors that have lost money as a result of broker misconduct. We are committed to recovering clients’ financial losses.

Morgan Stanley Smith Barney Female Employee Suspended and Fined for Unauthorized Signatures, Forbes, September 23, 2011

FINRA


More Blog Posts:
Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar, Stockbroker Fraud Blog, July 20, 2011

Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Theflyonthewall.com Inc. in Appeals Court, Stockbroker Fraud Blog, June 20, 2011

$63 Million Mortgage-Backed Securities Lawsuit Against Bank of America is Second One Filed by Western and Southern Life Insurance Co. Against the Financial Firm, Institutional Investors Securities Blog, August 29, 2011

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Posted In: FINRA , Financial Firms , Morgan Stanley

July 20, 2011

Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar

Jennifer Kim, an ex-Morgan Stanley (MS) trader, has consented to a $25,000 settlement to resolve SEC allegations that she hid proprietary trades that that went above and beyond the financial firm’s risk limits. The alleged misconduct resulted in approximately $24.5m in losses for Morgan Stanley. SEC Commissioner Luis Aguilar, however, is calling the terms of her settlement “inadequate.” In his written dissent, he said that Kim also should have been charged with committing antifraud provisions violations.

Kim and Larry Feinblum, who was her supervisor, are accused of employing “fake” swap orders a minimum of 32 times to conceal their risks. The swap orders they entered into were ones that they intended to cancel soon after. This let them trick the monitoring systems, which recorded lower net risk positions. This alleged maneuvering allowed them to employ a trading strategy that would let them profit from the difference in prices between foreign and US markets.

In December 2009, Feinblum, who lost $7m in a day, told his supervisor about how he and Kim had concealed their positions and went above risk limits. Feinblum, who no longer works for Morgan Stanley, has settled the related securities claims against him for $150,000.

As part of her settlement, Kim agreed to a minimum three-year bar from the brokerage industry. She also consented to cease and desist from future records and books violations.

Even in settling, Feinblum and Kim are not denying or admitting wrongdoing.

Ex-Morgan Stanley Trader Settles SEC Claims Over Hiding Risk, Bloomberg, July 12, 2011

Ex-Broker to Pay $25K Over Risky Trades; Aguilar Objects to Penalty as 'Inadequate', BNA Securities Law Daily, July 14, 2011

SEC Order Against Kim (PDF)

SEC Commissioner Aguilar's Dissent (PDF)


More Blog Posts:
Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000, Stockbrroker Fraud Blog, June 13, 2011

Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients, Stockbroker Fraud Blog, July 27, 2009

Broker Settles SEC Charges He Defrauded Elderly Nuns, Stockbroker Fraud Blog, January 13, 2011


Continue reading "Ex-Morgan Stanley Trader’s $25k Settlement Over Alleged Concealment of Proprietary Trades is Inadequate, Says SEC Commissioner Aguilar" »

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Posted In: Financial Firms , Morgan Stanley , Securities Fraud

June 20, 2011

Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Theflyonthewall.com Inc. in Appeals Court

The U.S. Court of Appeals for the Second Circuit has reversed a lower court’s ruling and decided that under New York law, Theflyonthewall.com Inc., an online financial news service, may not be held liable for disseminating the equity research recommendations found in reports of plaintiffs Barclays Capital Inc., Morgan Stanley & Co. Inc., and Merrill Lynch Pierce Fenner & Smith Inc. The appeals court’s Judge Robert D. Sack concluded that federal copyright law preempts the ‘Hot News’ misappropriation claim.

The financial firms’ reports contain research about public companies, their securities and business prospects, and their respective industries. The reports summarize these findings, which often include recommendations about holding, selling, and buying the subjects’ securities. The firms give clients and prospective ones these reports before the US securities markets open daily as an “informational advantage.”

The plaintiffs accused Fly, which has managed to get a hold of these recommendations and issue them before the brokerage firms had given them to the public or before the exchanges that the securities are traded have opened, of copyright infringement. Concurring with the plaintiffs, a lower court then barred the news service from both infringing on the copyrighted aspects of the brokerage firms’ research reports and publishing their recommendations until after the New York Stock Exchange opened.

Now, however, the appeals court is saying that “a firm’s ability to make news… does not give rise to a right for it to control who breaks the news and how.” The court reversed and remanded the earlier claim and told the district court to dismiss the brokerage firms’ misappropriation claim under New York law.

Related Web Resources:
Theflyonthewall.com Inc.

Read the district court's opinion (PDF)

Brokerages Lose in Appeals Court On N.Y. ‘Hot News’ Misappropriation Claim, BNA Securities Law Daily, June 20, 2011


More Blog Posts:
Mortgage-Backed Securities Lawsuit Against Bank of America’s Merrill Lynch Now a Class Action Case, Stockbroker Fraud Blog, June 25, 2011

China-Based Hackers Broke into Morgan Stanley Network, Reports Bloomberg, Stockbroker Fraud Blog, February 28, 2011

Dismissal of Lone Star’s $60 Mortgage-Backed Securities Texas Fraud Action Against Barclays is Affirmed by Federal Appeals Court, Stockbroker Fraud Blog, January 17, 2010

Continue reading "Morgan Stanley, Barclays, and Merrill Lynch Lose ‘Hot News’ Misappropriation Case Against Theflyonthewall.com Inc. in Appeals Court" »

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Posted In: Barclay's Bank , Financial Firms , Merrill Lynch , Morgan Stanley

June 13, 2011

Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000

Larry Feinblum, an ex-Morgan Stanley & Co. Inc. (MS) trader, has consented to settle for $150,000 SEC allegations that he hid from risk managers the true extent of risk involved in certain proprietary trading. This move caused the financial firm to suffer about $24.47 million in losses when it unwound the unauthorized positions.

The SEC claims that over a 3-month period in 2009, Feinblum, who was a supervisor on Morgan Stanley’s Equity Financing Products Swaps Desk, and trader Jennifer Kim executed a number of transactions that set up net risk positions that were significantly over limits that “could be exceeded only with supervisory approval.” The two are also accused of submitting swap orders into the firm’s risk management system that they never planned on executing and which they then promptly canceled.

The SEC says that not only did Feinblum and Kim set up their arbitrage trading strategy at positions that exceeded Morgan Stanley’s risk limits, but they also submitted the orders for the purpose of artificially and temporarily lowering the net risk positions in the securities as recorded in the firm’s risk management systems. They also went after a trading strategy that was supposed to create a profit from price discrepancies between foreign markets and US markets.

On December 17, 2009, Feinblum, who had just lost $7 million the day before, admitted that he and Kim had gone beyond the risk limits on repeated occasions and that they hid their misconduct. Morgan Stanley then proceeded to unwind the positions but by then they had already taken the financial hit.


Related Web Resources:
Former Morgan Stanley Trader Barred for Bogus Swaps, Securities Technology Monitor, June 2, 2011

SEC: Morgan Stanley trader’s trick caused millions in losses, The Washington Post, June 2, 2011

SEC Administrative Proceeding


More Blog Posts:
China-Based Hackers Broke into Morgan Stanley Network, Reports Bloomberg, Stockbroker Fraud Blog, February 28, 2011

Morgan Stanley Failed to Disclose Financial Adviser’s Felony Charge to FINRA, Claims Car Accident Victim’s Attorney, Stockbroker Fraud Blog, January 10, 2011

Morgan Stanley & Co. and TD Ameritrade Inc. to Repurchase Over $338M in Auction Rate Securities from New Jersey Investors, Institutional Investor Securities Blog, May 4, 2011

Continue reading "Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000" »

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Posted In: Financial Firms , Morgan Stanley , Swap Trades

February 28, 2011

China-Based Hackers Broke into Morgan Stanley Network, Reports Bloomberg

According to Bloomberg, Morgan’s Stanley’s network experienced a cyber break-in. The culprits were hackers based in China that broke into Google Inc.’s computers over a year ago. The break-in is documented in e-mails stolen from HBGary Inc, a cyber-security company that works for the investment bank.

Known as the Operation Aurora attacks, the break-ins took place in June 2009 and lasted for about six months. More than 20 companies were hit.

The HBGary emails don’t detail what data might have been stolen from Morgan Stanley or which of its multinational operations were hit. The broker-dealer reportedly considers the details of the cyber attacks confidential. Hacker activist group Anonymous stole the emails.

Morgan Stanley hired HBGary last year because of suspected hacker-linked network breaches that resulted in break-ins into the financial firm’s Internet security system. These attacks were not related to Operation Aurora. Per HBGary emails, the hackers that made those breaches were able to implant software for stealing confidential files and communications.

According to FBI Deputy Assistant Director Steven Chabinsky, hackers have stepped up efforts to obtain information involving mergers and acquisitions. The China-based hacker attacks did not help the growing tensions between China and the United States. Calls were even made for Secretary of State Hillary Clinton to look at Google’s claims about the raids and make her findings available to the public.

Following the cyber attacks, Google stopped censoring search results from Google.cn, its Chinese search engine. Google started shuttering its site following lengthy negotiations with officials in China.

Related Web Resources:
Morgan Stanley Attacked by China-Based Hackers Who Hit Google, Bloomberg, February 28, 2011

Operation Aurora, Techie Buzz, January 15, 2010

HBGary


More Blog Posts:
Morgan Stanley Failed to Disclose Financial Adviser’s Felony Charge to FINRA, Claims Car Accident Victim’s Attorney, Stockbroker Fraud Blog, January 10, 2011

Wall Street Knew 28% of the Loans Behind Mortgage Backed Securities (MBS) Failed to Meet Basic Underwriting Standards, Stockbroker Fraud Blog, January 10, 2011


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Posted In: Financial Advisers , Miscellaneous , Morgan Stanley

January 10, 2011

Morgan Stanley Failed to Disclose Financial Adviser’s Felony Charge to FINRA, Claims Car Accident Victim’s Attorney

According to Harold Haddon, the civil attorney for car accident victim Dr. Steven Milo, Morgan Stanley (MS) failed to disclose to the Financial Industry Regulatory Authority that financial adviser Martin Erzinger had been charged with a felony. Securities firms have 30 days from the time anyone working for them is charged with a felony to file a “Form U4” notifying FINRA.

Erzinger, who works with approximately $1 billion in accounts, was charged with a felony after he struck bicyclist Steven Milo in a car crash last July and then fled the collision site. Milo sustained serious injuries in the traffic crash. In December, the Morgan Stanley Smith Barney financial adviser struck a plea agreement. The felony charge against him was dropped and he pleaded guilty to misdemeanors. Erzinger claimed that at the time of the auto accident, he was suffering from undiagnosed sleep apnea, fell asleep at the steering wheel, and did not realize that he had hit anyone with his vehicle.

Erzinger was sentenced to community service and probation. Judge Fred Gannett also ordered him to tell FINRA about the felony charge. Attorney Haddon, however, says the court-ordered disclosure, which was submitted on December 22, doesn’t meet requirements because it only reveals that Erzinger was charged with a felony crime that was later dropped but does not mention the financial adviser’s misdemeanor guilty pleas or the sentence he must now serve.

Milo had opposed the plea agreement. Dow Jones Newswires reports that in court, Milo’s father-in-law Tom Marisco, who founded Marisco Funds and used to manage Janus mutual funds, blamed Morgan Stanley for not making the disclosures, which are mandatory. Morgan Stanley, however, says it contacted FINRA about the issue last July and believes that it satisfied all reporting requirements.

FINRA spokesperson Nancy Condon says the only way to notify FINRA about a reporting requirement is to electronically submit a Form U4.


Related Web Resources:
Lewis: Simple question tough for Morgan Stanley to answer, Denver Post/Dow Jones, January 8, 2010

Financial manager Martin Erzinger to accept plea bargain in Vail hit-and-run, 9News, November 2010

Form U4 Checklist, FINRA

Institutional Investors Securities Blog

Continue reading "Morgan Stanley Failed to Disclose Financial Adviser’s Felony Charge to FINRA, Claims Car Accident Victim’s Attorney" »

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Posted In: FINRA , Financial Firms , Morgan Stanley

December 28, 2010

Ex-Financial Adviser Pleads Guilty to Unauthorized Trading Involving Disabled Children’s Assets

Charles Winitch has pleaded guilty to involvement in a securities fraud scam that victimized disabled children. In the U.S. District Court for the Southern District of New York, the ex-financial adviser and “wealth manager” entered a guilty plea to the charge of wire fraud involving unauthorized trading for commissions. While federal prosecutors and United States Attorney for the Southern District of New York Preet Bharara did not name the financial firm that Winitch had been working for at the time, The New York Daily News identified him in 2008 as a stockbroker with Morgan Stanley.

WInitch is accused of taking $198,784 from a trust held by the guardians of disabled children called the Guardian Account. The trust, which is supposed to provide children with long-term income and comes from the youths’ medical malpractice settlements, was only supposed to invest in New York Municipal Bonds or US Treasury Bonds. However, Winitch made unauthorized trades in 11 accounts in the millions of dollars to generate higher commissions even though he lacked the authority or consent to take such actions. According to Bharara, Winitch and co-conspirators made about $198,000 in ill-gotten commissions. Meantime, the fund lost somewhere between $400,000 and $1 million.

Winitch’s criminal defense lawyer says that the former stockbroker did not know that the accounts contained the money of disabled kids. The ex-Morgan Stanley broker is facing up to 63 months behind bars, hefty fines, forfeiture of ill-gotten gains, and restitution.

Related Web Resources:
'Wealth Manager' Stole from Disabled Kids, Courthouse News Service, December 14, 2010

Morgan Stanley Advisor Pleads Guilty to Defrauding Disabled Children, OnWallStreet, December 17, 2010

Institutional Investor Securities Blog

Continue reading "Ex-Financial Adviser Pleads Guilty to Unauthorized Trading Involving Disabled Children’s Assets " »

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Posted In: Broker Fraud , Financial Firms , Morgan Stanley , Securities Fraud

October 27, 2010

Morgan Stanley’s Motion to Bar Ex-Hedge Fund Promoter Conrad Seghers from Pursuing FINRA Arbitration in Texas Securities Case is Granted by District Court

A district court has granted plaintiff Morgan Stanley’s motion that Conrad Seghers, a former hedge fund promoter, be preliminarily barred from pursuing Financial Industry Regulatory Authority arbitration proceeding against the broker-dealer over the way over his accounts were allegedly mishandled. Judge Denise L. Cote said that Seghers waved the right to arbitrate by proceeding with his Texas securities lawsuit when he litigated with earlier action. The dispute between the investment bank and Seghers has been going on for nearly a decade.

According to the court, a number of hedge funds and related entities run by Seghers and his associates opened accounts with Morgan Stanley in 1999. In 2001, Seghers and his partners accused the broker-dealer of serious errors that allegedly caused the funds’ value to sustain huge financial hits. A major investor in a Segher hedge fund would go on to file a Texas securities fraud complaint against the fund promoter, the funds, and his partners.

The following year, a number of the funds sued Morgan Stanley in court. The Texas securities dispute went to NASD (now FINRA) arbitration and the case was eventually settled.

When Seghers sued Morgan Stanley for $35 million in federal court over the investment bank’s allegedly fraudulent misstatements that led to the funds to drop in value, the lawsuit was dismissed as untimely under the Texas limitations period of four years. Seghers chose not to appeal the ruling.

However, not long after, one of the funds founded by Seghers that had traded assets through the Morgan Stanley accounts filed NASD arbitration proceedings accusing the investment bank of breach of contract and fraud related to the same alleged misconduct as the federal district court action. A court in New York dismissed the case as untimely.

This April, Seghers commenced a FINRA arbitration against Morgan Stanley. In July, the investment bank filed a complaint seeking declaratory judgment that the hedge fund promoter waived his right to arbitrate because of his earlier lawsuit, as well as due to the fact that the Texas arbitration was time-barred. The court granted Morgan Stanley’s motion.

Related Web Resources:
Morgan Stanley & Co, Inc., Leagle

Arbitration and Mediation, FINRA

Continue reading "Morgan Stanley’s Motion to Bar Ex-Hedge Fund Promoter Conrad Seghers from Pursuing FINRA Arbitration in Texas Securities Case is Granted by District Court " »

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Posted In: FINRA , Morgan Stanley , Texas Securities Fraud

September 29, 2010

Wall Street Knew 28% of the Loans Behind Mortgage Backed Securities (MBS) Failed to Meet Basic Underwriting Standards

Testimony and documentation provided to the Financial Crisis Inquiry Commission (FCIC) by Clayton Holdings, a due diligence company, revealed that as much as 28% of the loans failed to meet basic underwriting guidelines. According to the testimony given to the FCIC, only 54% of the loans met the lender’s underwriting guidelines and 28% were outright failures.

Unfortunately, about 40% of these bad loans went into securitized pools sold to investors. This information, provided to Wall Street banks, was ignored when they purchased these loans, then bundled into mortgage backed securities and sold to others. Furthermore, rating agencies Moody’s, Standard & Poor’s and Fitch, all charged with assessing the risks of securitized pools, ignored conclusive evidence that many of the loans failed to meet underwriting standards.

Loan originators profited, as did unscrupulous appraisers, then Wall Street firms and the rating agencies shared in the greed by packaging the overrated risky pools. The victims were unsuspecting investors, including individual investors, pension funds, municipalities and U.S. housing agencies, as well as overseas countries, banks and other foreign investors.

In the wake of this subprime mortgage fraud process and the collapse of the housing market, accusations of the chain of greed concerning mortgage backed securities (MBS) has now been confirmed: The toxic nature of the securities was known by Wall Street but simply ignored for the sake of profits.

In a related matter, Morgan Stanley accused of deceptive practices by the Massachusetts Attorney General by knowingly placing dubious mortgages into securitized pools. The facts in that case relied on Clayton reports of loan quality commissioned by Morgan Stanley. The firm settled for $102 million.

References:

Financial Crisis Inquiry Commission, www.fcic.gov

Raters Ignored Proof of Unsafe Loans, New York Times, Gretchen Morgenson; September 26, 2010

New Proof Wall Street Knew Its Mortgage Securities Were Subpar, Huffington Post, September 25, 2010

Attorney General of Massachusetts, www.mass.gov

Continue reading "Wall Street Knew 28% of the Loans Behind Mortgage Backed Securities (MBS) Failed to Meet Basic Underwriting Standards" »

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Posted In: Morgan Stanley , Mortgage Backed Securities

September 9, 2010

Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers

UBS AG unit UBS Wealth Management Americas recently recruited Bank of America Corp.'s Merrill Lynch financial adviser Nina Hakim to join its Westfield, New Jersey office. Hakim, who reportedly managed $300 million in client assets and generated $1.5 million in commissions and fees, will now report to UBS branch Manager Erik Gaucher.

Another new addition to the UBS team is Morgan Stanley Smith Barney adviser Raymond Schmidtke, who will be based in Seattle, Washington. According to regulatory records, Schmidtke, was employed by Citigroup Inc. for over two decades and stayed at the MS joint venture for a year. He reportedly had close to $100 million in assets under management and $1 million in annual production. He now reports to UBS branch manager Shawn MacFarlan.

In other investment adviser news, a team of now former Wells Fargo Advisors advisers has joined Morgan Stanley Smith Barney. Francis Schiavetti and Ben Dembin’s base will be the Boca Raton, Florida office. The team reportedly manages $107 million in client assets and produces approximately $1.2 million in commissions and annual fees. The two men both were employed by Wells Fargo and predecessor firm Wachovia Securities before joining the Morgan Stanley Smith Barney team.

In August, the Financial Industry Regulatory Authority fined and censured Morgan Stanley $800,000 for not making public disclosures, which is required under the SRO’s rules that oversee research-analyst conflicts of interest. FINRA claims that the financial firm also did not comply with a key 2003 Research Analyst Settlement provision when it failed to disclose independent research availability in customer account statements. Every six months, for the next two years, Morgan Stanley must now review a sample of its research reports and certify that they are in compliance with FINRA’s rules.

Related Web Resources:
Hires Merrill Lynch, Morgan Stanley Brokers, Fox Business, August 24, 2010

Morgan Stanley Adds Team From Wells Fargo, Faces FINRA Fine, Investment Advisor, August 24, 2010

FINRA Fines Morgan Stanley $800,000 for Deficient Conflict of Interest Disclosures in Equity Research Reports and Public Appearances by Research Analysts, FINRA, August 10, 2010

Continue reading "Morgan Stanley, UBS, Wells Fargo, and Merrill Lynch Recruit Other Investment Firms’ Brokers" »

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Posted In: Financial Firms , Merrill Lynch , Morgan Stanley , Smith Barney - Citigroup , UBS , Wells Fargo

July 20, 2010

Securities Class Action Against Morgan Stanley by Xerox and Kodak Retirees Dismissed by Appeals Court

The U.S. Second Circuit Court of Appeals in New York has upheld a lower court’s ruling to dismiss that the securities class action filed by Eastman Kodak Co. and Xerox Corp. against Morgan Stanley. The plaintiffs, retirees from both companies, are accusing the broker-dealer of advising them that if they retired early their investments would be enough to support them during retirement. They also claim that the investment bank persuaded them to open accounts that cost them the bulk of their wealth. According to the plaintiffs’ attorney, the retirees gave up job security and employment rights after they were told that if they retired early they could avail of a 10% withdrawal rate from their individual retirement accounts.

However, upon retiring, the retirees that invested lump-sum retirement benefits with Morgan Stanley experienced “disastrous” value declines. Also, they had invested with two Morgan Stanley broker, Michael Kazacos and David Isabella, that were later barred from the securities industry. Last year the broker-dealer settled FINRA charges over the two men’s activities by paying over $7.2 million.

The appeals court says that because of the 1998 Securities Litigation Uniform Standards Act, the plaintiffs are precluded from pursuing class state law claims, including misrepresentation claims. While the statute lets plaintiffs file lawsuits in state court to get around 1995 Private Securities Litigation Reform Act’s securities fraud pleading requirements, federal preemption of class actions claiming “misrepresentations in connection with the purchase or sale of a covered security” are allowed. The three-judge panel also said that because the retirees waited too long to file their securities fraud lawsuit, they cannot raise other federal securities law claims.

Related Web Resources:
Xerox, Kodak retirees lose Morgan Stanley appeal, Reuters, June 29, 2010

Morgan Stanley to Pay More than $7 Million to Resolve FINRA Charges Relating to Misconduct in Early Retirement Investment Promotion, FINRA, March 25, 2009

1998 Securities Litigation Uniform Standards Act, The Library of Congress

Continue reading "Securities Class Action Against Morgan Stanley by Xerox and Kodak Retirees Dismissed by Appeals Court " »

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Posted In: Broker Fraud , Broker-Dealers , Class Action Lawsuits , Financial Firms , Morgan Stanley , Securities Fraud

July 12, 2010

Morgan Stanley Settles Massachusetts Lending Case for $102 Million

According to Massachusetts Attorney General Martha Coakley, Morgan Stanley has agreed to pay $102 million to settle allegations that it offered predatory subprime mortgage loan funding in the state. The investment firm filed its assurance of discontinuance in Massachusetts state court, agreeing to pay $19.5 million to the state, $58 million in relief to approximately 1,000 Massachusetts homeowners, $2 million to nonprofit groups that help subprime foreclosure victims, and $23.4 million to a state pension plan and a state trust for investment losses. By agreeing to settle, Morgan Stanley is not admitting to or denying the attorney general's allegations.

Coakley contends that the investment bank provided subprime lender New Century billions of dollars. The funds were used to target lower-income borrowers to get them into loans they would not be able to pay back. Coakley contends that even though Morgan Stanley “uncovered signals pretty early on” that New Century’s practices “were not sound” and the “bad loans were causing the lender to collapse" the investment bank went forward with funding and securitizing the loans. Coakley also says that Morgan Stanley was aware that New Century repeatedly violated Massachusetts banking standards between 2005 and 2007, used inaccurate and inflated appraisals, and improperly calculate debt-to-ratio from initial “teaser rates.”

The state says that Morgan Stanley packaged the loans and sold them to big investors. The investment bank has been ordered to revise some of its lending practices.

Bank of America/Countrywide, Goldman Sachs, Fremont Investment and Loan, and others have reached similar settlements with the state. The approximately $440 million in settlement money will provide borrowers, investors, homeowners, and the state with relief and recovery.


Related Web Resources:
Morgan Stanley Settles Massachusetts Subprime Loan Probe, ABC News, June 24, 2010

Morgan Stanley to Pay $102 Million in Subprime Accord, Bloomberg Businessweek, June 24, 2010

Massachusetts Attorney General Martha Coakley

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Posted In: Financial Firms , Morgan Stanley , Subprime Mortgage

June 26, 2010

Texas Attorney General Candidate Barbara Ann Radnofsky Says State Should File Securities Fraud Lawsuit Against Wall Street Firms

Barbara Ann Radnofsky, the Democratic candidate for Texas attorney general, says that the state should sue Wall Street firms for securities fraud. Earlier this week, she published a legal brief accusing investment banks of being responsible for the financial crisis. Her Texas securities fraud briefing, which is modeled on the multibillion-dollar tobacco settlements from the 1990’s, is seeking approximately $18 billion in securities fraud damages and other reparations for Texas. She targets Morgan Stanley, Goldman Sachs Group, AIG insurance, and other leading financial firms, banks, and bond-rating agencies.

Radnofsky’s brief is not a securities fraud lawsuit, but it is a framework for one. She hopes that it will push incumbent Texas Attorney General Greg Abbott to take action. She contends that if Abbott fails to sue the firms by September, “he is committing legal malpractice.” She is accusing him of failing to act despite the “clear evidence.”

Radnofsky has noted that the financial meltdown has forced Texas to make cuts to social programs, environmental enforcement, and child protective services. She says the “Great Recession” has lead to child illness, hunger, death, and abuse. She also contends that foreclosures and abandoned homes have severely affected neighborhoods.

Radnofsky launched Suewallstreet.com earlier this week. The Web site includes a petition pushing for Texas and other US states to file a securities fraud complaint against numerous financial firms. The aim is to garner 100,000 signatures. Randofsky, who is an attorney, offered to handle the securities fraud lawsuit at no cost to taxpayers. Soon after Radnofsky launched her appeal, Attorney General Abbott’s office revealed that Texas, other states, and the US Department of Justice are conducting a broad investigation into the Wall Street firms that may have played a key role in the economic crisis.

Shepherd Smith Edwards & Kantas LTD LLP founder and Stockbroker Fraud Attorney William Shepherd is applauding Radnofsky’s move. ““I have no doubts that Wall Street’s actions, including intentional and grossly negligent acts, have caused severe harm worldwide. States such as Texas could be in a unique position to seek relief based on the history of similar suits. States and municipalities have been big losers as a result of financial woes caused by Wall Street and I congratulate Ms. Radnofsky for her efforts.”

Related Web Resources:
Radnofsky Urges legal action against Wall Street, Dallas News, June 26, 2010

Barbara Ann Radnofsky

Read the Brief

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Posted In: Financial Advisers , Goldman Sachs , Morgan Stanley , Texas Securities Fraud

February 5, 2010

Securities Claims Over Morgan Stanley Mutual Funds Dismissed by Appeals Court

Upholding a lower court’s decision, the U.S. Court of Appeals for the Second Circuit affirmed that investors’ securities claims in two Morgan Stanley (MS) mutual funds—the Morgan Stanley Technology Fund and the Morgan Stanley Information Fund—should be dismissed. The claimants had accused the investment firm of failing to disclose conflicts of interest between investment banking arms and its research analysts.

The court ruled that mutual fund offering statements are not necessary to disclose possible conflicts of interest that occur due to the dismantling of the “information barrier” between stock researchers and investment bankers. The appellate panel also found that there are two class actions against the open-ended mutual funds that fail to identify illegal omissions in the funds’ prospectuses or registration statements.

According to investors, they should have been notified that objectivity could be compromised because the managers of the mutual funds heavily depended on broker-dealers for their stock research. Citing the Securities Act of 1933, they filed a securities fraud lawsuit against Morgan Stanley. The plaintiffs contended that the brokerage firm’s offering documents omitted the possible conflict of interest. The plaintiffs claimed that these omissions cost them $500,000 and that the combined losses for the class were over $1 billion.

A federal judge dismissed their broker fraud complaints, citing a failure to prove that the law mandates disclosure of possible conflicts of interest. The second circuit affirmed the lower court’s ruling, saying it agreed with the SEC’s amicus curiae stating that both Form 1-A and the Securities Act do not require defendants to reveal that the information the plaintiffs’ claimed had been left out and that what the plaintiffs considered to be risks specific to the Morgan Stanley funds were in fact ones that every investor faces.

Among the defendants: Morgan Stanley, Morgan Stanley DW Inc. (MSDWI), MS & Co, the Technology Fund, the Information Fund, Morgan Stanley Investment Management Inc. (MSIM), Morgan Stanley Investment Advisors Inc. (MSIA), and Morgan Stanley Distributors Inc.

Related Web Resources:
Second Circuit Rules Morgan Stanley Mutual Funds Not Liable for Failing to Disclose Conflicts of Interest with Stock Analysts, Law.com, February 1, 2010

Court Nixes Class Actions Against Morgan Stanley, Courthouse News, January 29, 2010

Continue reading "Securities Claims Over Morgan Stanley Mutual Funds Dismissed by Appeals Court" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Financial Advisers , Morgan Stanley , Mutual Funds

December 18, 2009

Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over "Front-Running" of Research

The Financial Industry Regulatory Authority ( FINRA) has launched an investigation into improper trading in advance of stock research and ratings at Citigroup, J.P. Morgan Chase, Morgan Stanley and ten other financial firms, it was reported today by the Wall Street Journal and Reuters News Service.

FINRA - formerly the National Association of Securities Dealers (NASD) – has since August examined weekly meetings at Goldman Sachs where research analysts offer tips to traders and then to big clients. According to the Wall Street Journal, this examination has now been expanded to include ten other firms and FINRA is now seeking information concerning any meetings where unpublished research opinions or trading ideas were disclosed to non-research employees or clients.

"FINRA does not reveal names of firms that have received sweep letters," said its spokesman Herb Perone to Reuters. Citigroup, JPMorgan and Morgan Stanley could reportedly not be reached immediately for comment.

Continue reading "Citigroup, J.P Morgan Chase, Morgan Stanley and Other Firms Added to Investigation of Goldman Sachs over "Front-Running" of Research" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Citigroup , Goldman Sachs , J P Morgan - Chase , Morgan Stanley

December 11, 2009

Edward Jones and Merrill Lynch Brokers Like Where They Work, While UBS Representatives are the Least Happy

According to Registered Rep magazine’s latest Broker Report Card, 98% of Edward Jones brokers say their securities firm is the best place to work. 78% of Merrill Lynch brokers ranked their investment firm as the number the one workplace.

Findings were compiled from Internet surveys taken by 898 captive brokers last October. Other results:

• 73% of Morgan Stanley Smith Barney representatives gave their firm the top spot.
• 53% of Wells Fargo Advisors (includes Wachovia Securities and AG Edwards) brokers said their place of work was #1.
• UBS received the least accolades from its workers, with just 1/3rd of its brokers ranking it as the best securities firm workplace.

However, UBS brokers were at the top of the heap for self-reported metrics. According to UBS advisers, they claim an average $101.2 million for assets under management and gross production of $696,032. Other firms:

• Merrill Lynch representatives: $655,250 average gross production; $97.1 million under management
• Morgan Stanley Smith Barney brokers: $84.9 million under management ; $619,961 in production
• Wells Fargo representatives: $80.2 million in client assets; $542,350 in production
• Edward Jones representatives: $364,258 in average production; $58.6 million in assets under management

Yet, as Shepherd Smith Edwards & Kantas, LLP founder and stockbroker fraud lawyer William Shepherd points out, “securities brokers at large firms with average production receive about 30% of their gross production in pay. Brokers at Edward Jones receive about half. Thus, the take home pay for the brokers is not as different as is indicated. In any event, it is notable that the average stockbroker earns about $200,000 per year, a college degree is not required to gain a license, and the training takes only 4 months.”

Related Web Resources:
UBS Reps Least Happy Among Big-Firm Brokers, Wall Street Journal

Registered Rep

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Edward D. Jones , Financial Firms , Merrill Lynch , Miscellaneous , Morgan Stanley , UBS , Wells Fargo

August 31, 2009

In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification

A District Court judge has granted class certification in the securities fraud lawsuit against Lehman Brothers, Morgan Stanley, and Goldman Sachs. The plaintiffs are accusing the broker-dealers of putting forth misleading analysts reports about RSL Communications Inc. for the purposes of maintaining or obtaining profitable financial and advisory work from RSL. Per Judge Shira Sheindlin, the class is to be made up of all parties that bought RSL Common stock between April 30, 1999 and December 29, 2000.

RSL investors, who are the plaintiffs, contend that the defendants artificially inflated the market price of RSL common stock, which injured them and other class members.

In July 2005, the court had certified a class that included anyone who had bought or acquired RSL equity shares between the dates noted above after determining that the plaintiffs had made “some showing” that Rule 23 requirements had been satisfied. The broker-dealer defendants appealed.

The US Court of Appeals for the Second Circuit vacated the class certification order and remanded the action for reconsideration. It’s decision in e Initial Public Offering Securities Litigation, 471 F.3d 24 had clarified class certification standards.

Two years later, pending the outcome In re Salomon Analyst Metromedia Litigation, the court issued a stay. Following its opinion, which held that market presumption includes securities fraud allegations against research analysts, the Court lifted the stay, allowing the plaintiffs to renew their motion for class certification. The court granted the motion and noted that the defendants have been unable to “rebut the fraud on the market presumption by the preponderance of the evidence on the basis that the analyst reports” are missing certain key pieces of information. Per their securities fraud claim, plaintiffs can therefore avail of the “fraud on the market presumption to establish transaction causation.”

The court said that the plaintiffs have succeeded in proving that loss causation can be proven on a “class-wide basis."

Related Web Resources:
Court OKs Class Cert. In Fraud Suit Against Lehman, Law360, August 5, 2009

U.S. District Court for the Southern District of New York (PDF)

Continue reading "In Investment fraud Lawsuit Against Lehman Brothers, Goldman Sachs and Morgan Stanley, Court Grants Class Certification" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Broker Fraud , Goldman Sachs , Lehman Brothers , Morgan Stanley

July 27, 2009

Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients

Morgan Stanley & Co. Inc. has consented to pay half a million dollars to settle Securities and Exchange Commission charges that it recommended unapproved money managers to clients. The SEC claims the broker-dealer breached its fiduciary duty to Nashville advisory clients when it made material misstatements about a program designed to help clients choose money managers who were “properly vetted,” as well as assist them in developing investment goals.

Instead, the SEC claims that Morgan Stanley suggested money managers who were not approved to take part in the broker-dealer’s advisory programs and did not undergo the firm’s due diligence process. The SEC says that it was specifically William Phillips, a former Morgan Stanley broker based in Tennessee, who guided clients to three managers who were “unapproved.”

The clients were not told that the managers gave Morgan Stanley and Phillips significant fees or commissions of at least $3.3 million. The alleged incidents took place from 2000 to through early 2006.

Meantime, Phillips is contesting the charges against him and Is denying that he engaged in any impropriety. Phillips’s attorney claims the SEC is not alleging antifraud violations and that the allegations did not stem from any client complaints.

By agreeing to settle, Morgan Stanley is not admitting to or denying the allegations. The broker-dealer, however, did agree to cease and desist from violations in the future.

Scott Friestad, the SEC’s Associate Enforcement Director, recently noted that it is the job of investment advisers to put investors’ interests before their own and to give clients accurate and complete information at all times.

Related Web Resources:
Morgan Stanley paying $500,000 to settle SEC charges of misleading clients in Nashville, Newser.com, July 27, 2009

SEC Charges Morgan Stanley and Former Adviser with Misleading Clients, SEC, July 20, 2009


Related Web Resources:
Read the SEC's Order against Morgan Stanley (PDF)

Read the SEC's Order Against Phillips (PDF)

Continue reading "Morgan Stanley to Pay $500,000 to Resolve SEC Charges that it Recommended Unapproved Money Managers to Clients" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Broker Fraud , Financial Firms , Morgan Stanley

July 10, 2009

Morgan Stanley Plan to Repackage Low-Grade Debt Obligations Then Sell These as Low-risk AAA Bonds is "Preposturous," Says Stockbroker Fraud Lawyer Bill Shepherd

Morgan Stanley is taking low grade collateralized debt obligations, repackaging these in into new pooled securities and obtaining questionable AAA ratings. The broker-dealer plans to sell $130 million CDO’s this way in a manner similar to the way banks have been dealing with commercial mortgage-backed securities. The repackaged CDO is to a great expent a copy of a CDO put together by Goldman Sachs Group in 2007 using bonds from Greywolf CLO I Ltd.

$87.1 million of securities are expected to receive the AAA rating—the offering is 89 cents on the dollar—the second portion is $42.9 million of securities that Moody's Investors Service have rated Baa2.

According to Sylvain Raynes, an R&R Consulting principal, many insurers and banks can only buy AAA. She says that by making AAA out of not AAA, people with AAA “on their forehead” can purchase.

Morgan Stanley is mirroring re-REMICs. This financing structure bundles mortgage securities into bonds that give investors another layer of collateral (or protection) from downgrades. Banks use Re-REMICs as protection against losses on residential mortgage securities.

Already, some $27 billion in home-loan bond re-REMICs have been issued this year—an increase from the $17 billion for all of 2008. Even Goldman Sachs has plans to sell $216.9 million of repackaged commercial mortgage debt. Re-REMIC will come from bonds sold in 2006.

After learning about Morgan Stanley’s plan to repackage CDO’s, Shepherd Smith Edwards & Kantas LTD LLP Founder and Stockbroker Fraud Attorney Bill Shepherd said, “Apparently there have been no lessons learned by Wall Street about packaging and selling questionable loans by attaching misleading AAA ratings to these in order to subvert prudent investment goals. Our securities fraud law firm is pursuing many claims for institutional and individual clients who have been burned by such investments. Any defense by investment firms that they did not know these investments were risky was then—as is now—simply preposterous!”

Related Web Resources:
Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds, Bloomberg.com, July 8, 2009

Morgan Stanley To Sell $130M Repackaged CDO - Sources, Wall Street Journal, July 8, 2009

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Collateral Debt Obligation , Financial Firms , Morgan Stanley

March 5, 2009

Wells Fargo, Goldman Sachs, JP Morgan Chase, Citigroup, UBS Securities, Bank of America, Moody’s Investment Services, and Fitch Ratings are Among Defendants Sued On Behalf of Wells Fargo Certificate Investors for Alleged Securities Fraud Violations

The Boilermaker-Blacksmith National Pension Trust is suing a number of investment banks, credit rating agencies, and underwriters, including Wells Fargo, WFASC, Morgan Stanley & Co., Credit Suisse Securities (USA) LLC, Barclays Capital Inc., Bear Stearns & Co., Countrywide Securities Corp., Deutsche Bank Securities Inc., JPMorgan Chase Inc., Bank of America Corp., Citigroup Global Markets Inc., McGraw-Hill Cos., Moody's Investor Services Inc., and Fitch Ratings Inc., over allegations that they made false statements in the prospectus and registration statement for certificates that were collateralized by Wells Fargo Bank, NA. The lawsuit, filed on behalf of thousands of investors that bought the certificates from Wells Fargo Asset Securities Corp., accuses the defendants of violating the 1933 Securities Act by engaging in these alleged actions.

According to the securities fraud lawsuit, the defendants concealed from investors that Wells Fargo revised its underwriting practices in 2005 and became involved in high risk subprime mortgage lending. The complaint contends that WFASC and a number of defendants submitted to the Securities and Exchange Commision prospectus and registration statements representing that the mortgages were backed by certificates that were subject to specific underwriting guidelines for evaluating a borrower's creditworthiness. The plaintiffs contend that these prospectuses and registration statements were false because they neglected to reveal that the Wells Fargo-originated certificates were not in accordance with the credit, underwriting, and appraisal standards that Wells Fargo, per the companies, had supposedly used to approve mortgages.

The lawsuit also claims that because Wells Fargo decided to enter the subprime mortgage mortgage market in 2005, the investment bank had to take significant write-downs in 2008 because of its massive exposure to the subprime market and the WFASC certificates that these mortgages backed dropped significantly in value. The Boiler-Blaksmith fund reports that it lost about $5 million, which is more than half of what it invested.

Related Web Resources:
Read the Complaint

The Boilermakers National Funds

Continue reading "Wells Fargo, Goldman Sachs, JP Morgan Chase, Citigroup, UBS Securities, Bank of America, Moody’s Investment Services, and Fitch Ratings are Among Defendants Sued On Behalf of Wells Fargo Certificate Investors for Alleged Securities Fraud Violations" »

Posted by Shepherd Smith Edwards & Kantas LTD LLP | | Email This Post

Posted In: Bank of America , Broker Fraud , Citigroup , Credit Ratings Agencies , Credit Suisse , Deutsche Bank , Financial Firms , Fitch , J P Morgan - Chase , Moody's , Morgan Stanley

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