Morgan Stanley Stockbroker Suspended for Engaging in Private Transactions

Ken Kavanagh of Hawley, Pennsylvania submitted a Letter of Acceptance, Waiver, and Consent (AWC) in which he was fined and suspended by the Financial Industry Regulatory Authority (FINRA), for allegedly engaging in private transactions and falsely answering compliance questionnaires in violation of NASD Rules 3030 and 2110 and FINRA Rules 3270 and 2010. In April 2006, Ken Kavanagh was registered as a General Securities Representative with Morgan Stanley. According to FINRA, from October 2007 through March 2018 Kavanagh engaged in outside business activities without providing prior written notice to Morgan Stanley. The findings stated that Kavanagh managed the personal affairs of professional athletes, 40 of whom were clients of both Kavanagh and Morgan Stanley. The findings also stated that Kavanagh formed two entities to facilitate his activities and had separate bank accounts for the personal services he provided, generating $5 million. In addition, Kavanagh concealed his relationship with his two entities by naming a relative the sole owner and falsely attested on compliance questionnaires that he was not involved in any outside activities.

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Former Morgan Stanley and Ameriprise Stockbroker Suspended for Misconduct

Steven Tarasius Yellen of El Paso, Texas submitted a Letter of Acceptance Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) for allegedly exercising discretion and engaging in unauthorized trading in violation of NASD Rule 2510(b) and FINRA Rules 4511 and 2010. From August 1984 until February 2016, Steven Tarasius Yellen was registered with Morgan Stanley as a General Securities Representative. According to FINRA, during his time with Morgan Stanley, Steven Yellen exercised discretion in a customer’s account without written authorization or acceptance of the account as discretionary and engaged in unauthorized trading. The findings stated that he opened a second account for the same customer without knowledge and transferred $30,000 from the original account to execute two unauthorized transactions. The firm did settle with the customer and filed a Uniform Termination Notice for Securities Industry Registration (“Form U5”) terminating Yellen.

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Morgan Stanley’s Florida Branch Manager Barred for Misconduct

Terry Lee McCoy of New Port Richey, Florida submitted a Letter of Acceptance, Waiver, and Consent (AWC) in which he was barred by the Financial Industry Regulatory Authority (FINRA) for allegedly failing to supervise his firms’ representatives in violation of NASD Rule 3010, MSRB Rule G-27, and FINRA Rule 2010. In March 1999, Terry McCoy joined Morgan Stanley as a General Securities Principal and Municipal Securities Principal. According to FINRA, during the period from September 2011 through July 2012, McCoy was branch manager of Morgan Stanley’s Palm Harbor, Florida branch and was responsible for supervising the business and activities of all employees. FINRA stated that while under McCoy’s supervision, two of the firm’s registered representatives engaged in excessive and unsuitable trading and used discretion in 6 accounts of a 79-year-old customer with severe physical disabilities without his authorization. Due to the excessive trading, the account generated commissions of over $9 million.  FINRA also stated that McCoy failed to follow up on multiple red flags and failed to detect discretion in the accounts, despite his routine meetings with the customer.

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Former Morgan Stanley Broker Suspended for Unsuitable Trading of UITs

Lloyd Thomas Layton, a former registered stockbroker submitted a Letter of Acceptance, Waiver and Consent (AWC) by the Financial Industry Regulatory Authority (FINRA) for allegedly engaging in an unsuitable pattern of short-term trading of unit investment trusts (UITs). Layton was registered from June 2009 to March 2015 as a General Securities Representative of Morgan Stanley. According to FINRA, Layton repeatedly engaged in an unsuitable pattern of short-term trading of UITs in a total of 54 customer accounts. Mr. Layton allegedly recommended that these customers purchase then sell their UITs before their maturity date. In addition, Layton also recommended his customers to use the proceeds from a short term sell of a UIT and purchase another with similar or identical investment objectives. Due to Layton’s unsuitable recommendations, his customers incurred unnecessary charges.

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Morgan Stanley Broker Barred for Unauthorized Trading

The Financial Industry Regulatory Authority (FINRA) issued a Letter of Acceptance, Waiver, and Consent (AWC) in which Thomas Meier, of Miami, Florida, was permanently barred from association with any FINRA member firm in all capacities.  Thomas Alan Meier was found by FINRA to have engaged in unauthorized trading in eight of his customer’s accounts, causing substantial losses to the affected customers. FINRA found that Mr. Meier effected approximately 1,290 unauthorized transactions in eight accounts of six of his customers.  The transactions included both purchases and sales of equity securities.  According to FINRA, Mr. Meier did not have discussions with the customer prior to the transactions, nor did he obtain their authorization prior to executing any of the transactions.  FINRA’s findings note that two of the customer’s suffered realized losses of approximately $78,000.  Mr. Meier allegedly earned approximately $265,000 for his unauthorized transactions. 

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Former Morgan Stanley Broker Suspended for Unsuitable UIT Recommendations

Richard Shotz, a registered representative formerly employed with Morgan Stanley, submitted a Letter of Acceptance, Waiver and Consent (AWC) in which he was suspended for four months and fined $7,500 by the Financial Industry Regulatory Authority (FINRA) for engaging in unsuitable short-term trading of Unit Investment Trusts (UITs) in 486 customer accounts. According to FINRA, Richard Alan Shotz, of Port Orange, Florida, recommended and engaged in unsuitable short-term trading of UITs.  The UITs recommended by Mr. Shotz had 24 month maturity dates and significant upfront charges.  Notwithstanding, Mr. Shotz continually recommended his customers sell their UITs less than a year after purchase (FINRA found an average holding period of only 143 days). Furthermore, on approximately 1200 occasions, FINRA found that Mr. Shotz recommended that his customers use the proceeds from the short-term sale of one UIT to purchase another UIT with similar and/or identical investment objectives.  These unsuitable recommendations and transactions caused his customers to incur unnecessary sales charges.  Without admitting or denying FINRA’s findings, Mr. Shotz was fined $7,500 and suspended for four months.  The suspension is in effect from February 20, 2018 through June 19, 2018.

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Morgan Stanley Representative Fined and Suspended for Unauthorized Trades

Mathew M. Serth, of Stone Ridge, Virginia, submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Financial Industry Regulatory Authority (FINRA) in which he was fined and suspended for allegedly placing unauthorized trades in customers’ accounts without their knowledge or consent. FINRA investigators found that while registered with Morgan Stanley, Mr. Serth entered trade orders in four accounts.  The net costs of the transactions ranged from $15,000 to $86,000.  However, FINRA stated that none of these customers granted Mr. Serth discretionary trading authorization to trade in their accounts.  Upon discovering the unauthorized trades, Mr. Serth’s member firm cancelled the trades and reimbursed a customer for margin interest incurred as a result of the unauthorized trades.  Without admitting or denying FINRA’s findings, Mr. Serth was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in any capacity for three months.  The suspension is in effect from August 7, 2017 through November 6, 2017.

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FINRA Bars Morgan Stanley Broker for Knowingly Misrepresenting Customer Account Values

Kim Dee Isaacson, a former registered representative with Morgan Stanley, submitted an Offer of Settlement to the Financial Industry Regulatory Authority (FINRA) in which he consented to, but did not admit to or deny, FINRA’s findings that he knowingly misrepresented his customer’s account value by more than $3.1 million and willfully executed trades in his customer’s accounts despite express orders not to do so. During the relevant period, Kim Dee Isaacson, of Farmington, Utah, earned nearly $400,000 in commissions and fees from his customer’s accounts, which were valued at approximately $27 million.  Although Mr. Isaacson and his client spoke on the phone nearly every day regarding the accounts’ performance, Mr. Isaacson began providing false and inflated account values to hide the accounts’ losses.  According to FINRA, Mr. Isaacson’s customer believed his accounts held $3.1 million more than their actual value because of his misrepresented account valuations.  Further, FINRA found that Mr. Isaacson continued to purchase securities and long-term bonds despite his customer’s instructions not to do so.  FINRA also found that Mr. Isaacson engaged in unauthorized trading in the accounts, effecting approximately 360 transactions without consent.  Consequently, Kim Dee Isaacson was permanently barred from association with any FINRA member in any capacity. 

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FINRA Hits Morgan Stanley with $13 Million in Fines and Restitution for Inadequate Supervision of UITs

The Financial Industry Regulatory Authority (FINRA) announced today that it ordered Morgan Stanley Smith Barney LLC (Morgan Stanley) to pay $13 million in fines and restitution for failing to supervise the sales of unit investment trusts (UITs). FINRA found that from January 2012 through June 2015, hundreds of Morgan Stanley brokers executed short-term UIT rollovers in thousands of customer accounts.  Further, FINRA found that Morgan Stanley failed to adequately supervise its representatives’ sales by failing to provide sufficient guidance or training to detect unsuitable short-term UIT trading. 

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FINRA Fines and Suspends Former Morgan Stanley Broker for Discretionary Trade Violations

Tom Puentes, a former registered representative with the Langley, Washington branch of Morgan Stanley, submitted a Letter of Acceptance, Waiver, and Consent in which he consented to, but did not admit to or deny, the Financial Industry Regulatory Authority’s (FINRA) findings that he entered discretionary trades in at least fourteen customer accounts without the necessary prior written authorization. FINRA found that Tom Abel Puentes, of Langley, Washington, failed to obtain the necessary written authorization from his customers or his member firm when he exercised time and price discretion in the accounts of fourteen customers.  According to FINRA, Mr. Puentes exercised discretion to purchase municipal bonds on approximately 220 occasions in his customers’ accounts, in contravention of his firm’s policies.  Further, Mr. Puentes falsely answered “no” on his firm’s annual compliance questionnaire to the question asking if he had any accounts in which business is transacted on a discretionary basis. 

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