A Financial Industry Regulatory Agency (FINRA) arbitration panel awarded $2.5 million in damages, fees and attorney's fees against Morgan Stanley, Morgan Stanley Smith Barney, and several current and former employees. The panel determined Morgan Stanley broker Steve Wyatt and other employees churned trades and committed fraud, as six investors lost millions. The victims are Dr. Lon Lutz, Dr. Rahul Vohra, Sherry Vohra, Barbara Carter Summers, Dr. Jeff Summers, and Dr. Michael Winkelmann.
The victims filed a complaint against Morgan Stanley, Steve Wyatt, Hilary Zimmerman, and Fred Brister, III in 2012. Brister is the branch manager. FINRA did not publish the complaint, but did post a final order on July 24 on its website. Wyatt responded to the complaint but did not sign a submission agreement.
The formal language used by FINRA states:
Claimants asserted the following causes of action: violations of FINRA rules on suitability; unauthorized trading; use of manipulative, deceptive or other fraudulent device or contrivance; lack of fair dealing; churning; failure to uphold the standards of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade); violation of all FINRA rules and industry requirements for supervision; violation of SEC Rule 10b-5 regarding use of manipulative and deceptive practices; violation of Miss. Code Ann. § 75-71-501 (2015) et seq. regarding general fraud; violation of the Investment Advisers Act of 1940 and rules regarding common law negligence and fraud, including negligent and fraudulent inducement; and violation of all industry, statutory and common law rules regarding fiduciary duties...Strip away the legal jargon and the Wall Street mumbo jumbo and it means one thing: Morgan Stanley employees lied to the victims, used them as pump monkeys, and treated them as pigeons while they churned trades and lined their own pockets. Trusting pigeons who relied on Morgan Stanley to protect their money. Little did they know they were instead sacrificing themselves for the greater good of the greed of Morgan Stanley, et al.
The victims asked for the following damages from the foxes who guarded their money:
Dr. Lon Lutz: $154,000
Dr. and Mrs. Vohra: $381,334
Barbara Carter Summers: $3,148,812
Dr. Jeff Summers: Unspecified amount
Dr. Michael Winkelmann: $745,467
They also asked for interest on the damages, punitive damages, and attorney's fees, and claimed they spent nearly $200,000 on attorneys, court costs, and expert witness fees.
Morgan Stanley asked FINRA to dismiss the claims and expunge any trace of this rather unpleasant affair. It is the gentlemanly thing to do, you see. Civilized men do not do something so crass as sue each other. It is just not proper. Mr. Wyatt asked for the same relief as well. They were in this affair together, after all.
The victims asked FINRA to dismiss their claims against Wyatt and Zimmerman. Morgan Stanley and Brister squirmed and squealed but in the end, a hearing was held. The panel deliberated, found them guilty, and started handing out damages to the victims:
Dr. Lon Lutz: $125,460
Dr. and Mrs. Vohra: $308,253
Dr. Michael Winkelmann: $397,575
The panel did not stop with these awards, and then moved to more damages. (They were all awarded jointly and severally):
$68,350: Morgan Stanley, Morgan Stanley Smith Barney and Brister for costs
$78,333: reimbursement by defendants for expert witness costs.
Pre-award interest of 2.5% per annum since July 13, 2012. Ouch.
Post award interest on damages and other awards at a rate of 4.5% per annum until satisfied.
$55,800: fees for adjudication of case by panel.
All requests for expungement were denied.
Attorneys Kim Breese of Jackson, Judson Lee of Madison and Joseph Peiffer of New Orleans represented the victims. (Disclosure: Mr. Breese advertises on this website.)
JJ also reported in 2014 that Wyatt was suspended, fined, and fired for his activities:
FINRA fined former Morgan Stanley broker Steven Wyatt $12,500 and suspended him for four months in a consent agreement issued last July.* The agreement states Mr. Wyatt purchased shares of Morris Innovative, a medical device company, without his employer's knowledge and then secretly directed several Morgan Stanley clients to invest their money in the same company.FINRA reports Mr. Wyatt is "currently not licensed to act as a broker." FINRA also reports on its website the following complaints are pending against Mr. Wyatt:
The order states Mr. Wyatt purchased $58,750 (43,518 shares) in the company in October 2009 and February 2010. Mr. Wyatt, however, purchased the shares in his wife's name. Mr. Wyatt did so without notifying Morgan Stanley of his private stock-trading activities, a big no-no in the world of FINRA and securities regulation. Mr. Wyatt also used his personal Yahoo email account to recommend purchasing shares of the company, instead of using his Morgan Stanley email account.
Mr. Wyatt brought four of his clients to a meeting with company representatives. Mr. Wyatt naturally promised "an overwhelming rate of return" (shades of Stanford Group?). Morgan Stanley fired Mr. Wyatt after the allegations were raised.
(December 2014)CLAIMANTS ALLEGE, INTER ALIA, THAT FROM DECEMBER 2007 TO JUNE 2012 THE FA ENGAGED IN UNAUTHORIZED TRADING IN THE CLIENT'S ACCOUNTS, PURCHASED UNSUITABLE SECURITIES FOR THE CLIENTS AND MISREPRESENTED INVESTMENT STRATEGIES.Damage Amount Requested: $1,000,000.00
(July 2014) CLAIMANTS ALLEGE, INTER ALIA, BREACH OF FIDUCIARY DUTY WITH RESPECT TO THEIR MANAGED ACCOUNTS - DECEMBER 2007 TO MAY 2014. Damage Amount Requested: $647,037.00