by Howard Haykin

Take, for example, the veteran Morgan Stanley broker who, for 5 years, complied with an elderly customer’s desire to have his trust assets exclusively invested in CDs - "laddered" to mature at different intervals. The customer verbally authorized the broker to buy new CD issuances upon maturity of prior CD issuances.

But along the way the broker’s patience apparently snapped. And rather than suggest that the customer take his business elsewhere – e.g., by directly purchasing his CDs from a bank - the broker began trading CDs in the customer’s brokerage accounts.

Over the next 26 months, the broker executed 273 CD transactions in the customer accounts by selling the CDs prior to maturity and using the sale proceeds to purchase new CD issuances. These unsuitable and unauthorized trades cost the customer nearly $101,000 in losses - essentially because the CDs were sold in the secondary market where they were priced below par, due to factors such as interest rate fluctuations. Fortunately, the customer largely recovered his losses after his daughter filed a complaint with the broker-dealer. 

[For further details on the above case, click on … FINRA Case #2016051569601.]