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Investor Protection

Morgan Stanley Won’t Always Have Your Back

November 4, 2019

by Howard Haykin



Morgan Stanley is a fine firm with a solid compliance practice and talented branch managers. But sometimes the actions of a troublesome broker can “slip through the cracks.”



The Securities regulator for the Commonwealth of Massachusetts recently sanctioned Morgan Stanley for failing to supervise a Boston-based broker who was churning (i.e., excessively trading) his customers' accounts. The broker has since been banned from the industry, and Morgan Stanley agreed to reimburse the customers for their losses.


Morgan Stanley never formally investigated the broker, even though his unlawful behavior triggered 97 alerts, dating back to 2010. It was only after a customer’s accountant filed a complaint in 2014 that Morgan Stanley took a serious look into the charges.


The accountant discovered that ... the broker had been designated as the executor of the customer’s estate and as a beneficiary in the customer’s will – both designations were in violation of securities rules. And in violation of Morgan Stanley policies, the broker never disclosed those designations to the firm. Further investigation revealed the incidence of excessive trading. 



INVESTOR TAKE AWAYS.    A financial watchdog – here, an accountant – saved his client and others from a broker’s objectionable behavior. As we repeatedly stress on this web site, investors who are incapable or unable to fend for themselves need a trusted friend, family member or financial to serve as a second set of eyes and ears.


It takes a lifetime to build a personal fortune or nest egg. It takes a shady broker only months or years to run through that financial portfolio.