Secretary of State Dilbert Hosemann fined Morgan Stanley $4.2 million for improper trading by one of its financial advisers and subsequent losses suffered by clients last week. The New York Times picked up the ball and ran with it as it showed a more complete picture of what took place at the local office of Morgan Stanley. The newspaper's quiz revealed an office that was not well-monitored by the company and a "genius" broker who was double dealing with his clients. The New York Times reported:
A troubling call came in to Morgan Stanley’s internal hotline in May 2010.
One of the company’s top financial advisers in Mississippi, Steve Wyatt, was struggling with medications and was “not sleeping, coming in 3 and 4 a.m.,” his assistant said on the call, according to notes taken by the person who answered the phone. Mr. Wyatt, a broker, was also trading client money “erratically,” the assistant said.
Morgan Stanley is one of the top banks on Wall Street, operating one of the most sophisticated financial advisory businesses in the world. But when the call came in, there was little effort to help fix the problems, Mr. Wyatt’s colleagues — and Mr. Wyatt himself — testified in arbitration.
This was not the only time Morgan Stanley did not heed warnings about Mr. Wyatt, who managed tens of millions of dollars of customer money, according to a settlement this week and documents from arbitration cases against him and the company.
During Mr. Wyatt’s five years at the company, supervisors and compliance officers noted his problematic behavior and business patterns many times and failed to step in, documents show. Lawyers for his former clients claim that they lost about half their money, or around $50 million...
Mr. Wyatt, who oversaw more than $100 million in client money, was fired in 2012, more than two years after that phone call and after more concerns were raised....
This week, the Mississippi secretary of state said in a settlement with Morgan Stanley that it had “failed to reasonably supervise” Mr. Wyatt. “Clearly, they had warning signs — they had indications of personal issues,” Delbert Hosemann, the Mississippi secretary of state, said of Morgan Stanley. “All of those were either dealt with in a cursory manner or not dealt with at all.”
The settlement barred Mr. Wyatt and his immediate supervisor from the securities industry for life. Morgan Stanley was also instructed to create a $4.2 million fund to reimburse clients, a small part of what customers claim they lost with Mr. Wyatt.
Morgan Stanley did not admit or deny the accusations in the state settlement.
The company is fighting dozens of Mr. Wyatt’s former clients in arbitration. It has said in legal documents that the clients were “negligent” for not following Mr. Wyatt more closely. In the three arbitration cases that have been decided so far, Morgan Stanley has had to pay about $3 million....
The state settlement provides few details about the behavior that got Mr. Wyatt and Morgan Stanley into trouble. But closed testimony and thousands of pages of documents from the arbitration cases reviewed by The New York Times shed light on how the matter played out at the company.
At one point, Mr. Wyatt’s behavior raised enough concern that Morgan Stanley supervisors stopped him from trading in his personal accounts. At the same time, the company allowed him to continue trading money he managed for clients.
One of his colleagues in Mississippi said in closed arbitration testimony that she and others in the office were suffering from a “basic shock that nothing was happening to help Steve, help the clients, help the firm, help the office with what was going on,” according to a transcript.
“The broker is a problem in this case,” said Joseph Peiffer, a lawyer representing some of Mr. Wyatt’s clients. “But the real problem is that he was allowed to do what he did by Morgan Stanley.”...
In 2011, Morgan Stanley began an investigation of Mr. Wyatt’s behavior. That ended with a reprimand for buying stocks on behalf of customers without checking with them first, the Mississippi settlement said.
Mr. Wyatt was fired in June 2012 when a lawyer representing one of his clients presented Morgan Stanley with evidence that he had been using a personal email address to push clients to buy investments that he held in his own private accounts....
The settlement this week said that Morgan Stanley did little to check whether Mr. Wyatt’s trading strategies were consistent with his clients’ needs, or to verify the information about them that he put in the company’s database..... Rest of article.