Morgan Stanley to pay more than $ 7 million to resolve FINRA

 

Thursday, Mar 26,2009, 11:48:57 AM   Click:

Copyright: Business Wire
Source: Business Wire
Wordcount: 1308

Business Editors / Financial Editors

WASHINGTON - (BUSINESS WIRE) - March 25 2009 - The Regulatory Authority Financial Industry (FINRA) announced today that it has fined Morgan Stanley & Co. $ 3 million - and ordered him to pay more than $ 4.2 million in restitution to 90 Rochester, NY area retirees - to settle charges that its control system failed to detect and prevent brokers to persuade Eastman Kodak Company and Xerox Corporation employees to retire early based on unrealistic promises of high returns on investment and the adoption of unsuitable investment strategies.

FINRA found that Morgan Stanley does not have enough to supervise the activities of Michael J. David M. Kazacos and Isabella, two former registered representatives in its branch office in Rochester. FINRA Kazacos definitively excluded from the securities industry for having committed numerous violations of FINRA rules in the context of its request and handling the rollover IRA / retirement accounts, such as making unrealistic forecasts that customers can earn investment returns of 10 per cent annually.

In a disciplinary complaint filed today, Isabella FINRA accused of having committed the same fault. The case will be tried before a three-member FINRA instruction. FINRA also found that Ira S. Miller, the director of Morgan Stanley, Rochester branch, did not supervise two representatives. Miller was fined $ 50,000, suspended from acting in a major capacity for one year and ordered to re-qualify as a principal before serving in that capacity in the future.

FINRA found that, following the absence of at least 184 customers suffered financial difficulties, including losses on the market, a reduction of capital and the inability to maintain the rate of withdrawal. In many cases, the score of the initial investment has been eroded by the declining market and the monthly customer were not funded by income, but are actually the major distributions. Some customers have been forced to return to work at a greatly reduced income to meet living expenses. FINRA Morgan Stanley ordered to pay restitution to 90 former clients of Isabella Kazacos or a loss. The company has already settled with 101 other customers of these brokers.

"The protection of investors who have retired or considering retirement has been a FINRA priorities," said Susan L. Merrill, Executive Vice President and Chief Executive Officer of execution. "Brokerage Firms and brokers who serve investors considering retirement must ensure that their customers are the appropriate investment recommendations based on reasonable assumptions of market performance and are given detailed disclosure of investment risks. The weaknesses in the control of Morgan Stanley and its management have led to losses suffered by customers at a vulnerable time in their lives - retirement - which could have been avoided. "

Specifically, FINRA found that from 1998 to 2003, Kazacos persuade retirees and potential retirees to invest their retirement assets with him by the representative that investors earn 10 percent returns each year and will be able to meet their income needs each year by withdrawing the same percentage for living expenses without reducing its capital. Kazacos statements encouraged several people to spend their retirement, the accounts of Morgan Stanley, with some deciding to retire earlier than they would otherwise.

FINRA found that customers said Kazacos in 50 years that even if they have not reached the minimum age for qualified withdrawals from their retirement accounts (59-and-a-half), they may begin to take systematic distribution of their accounts without penalty, based on Article 72 (t) of the Internal Revenue Code. FINRA also found that Kazacos failed to inform clients of risks associated with its recommended investment strategies.

FINRA further found that once the service began Kazacos retirement accounts - which are often the only source of income for pensioners - he implemented investment strategies inappropriate exposure that accounts for a greater risk, especially in a declining market, and reduces the principal in many accounts. He invested a lot of clients in mutual funds, with a high concentration evil in equity funds. Kazacos also recommended variable annuity transactions inappropriate.

As for Isabelle, a former employee of Xerox, FINRA charged that from 2000 to 2003, he requested a large number of pensioners of the company and potential retirees to invest with him to Morgan Stanley. Isabella would have represented to potential customers that if they invested their retirement money with him, they earn about 10 percent returns every year or more and be able to meet their income needs to withdraw a sum of money each year, without reducing its capital.

In addition to the above violations, FINRA Isabella charged with falsification of records regarding the financial situation and objectives of its clients. FINRA also alleged that in exchange for various gifts to certain employees of Xerox, Isabella improperly obtained confidential data on employment, among other things, the retirement of persons employed by customers of Xerox. He used this confidential information to attract new customers. FINRA further alleged that, in communication with potential customers, Isabella use a professional - specialist in retirement planning - it did not possess. Finally, Isabella FINRA accused of providing false testimony during his investigation.

FINRA that Morgan Stanley had failed to implement a monitoring system to ensure that Kazacos and Isabella provided with clients on their disclosure risk of withdrawal. During the period of time, Kazacos and Isabella generated approximately $ 15.4 million in gross commissions. The company knew or should have known that these representatives have been actively marketing their retirement programs for retirees and potential retirees. However, the company has failed to take reasonable steps to ensure, among other things, that customers were informed of the risks and Kazacos and Isabella did not promise or promote unrealistic investment returns. FINRA further found that Morgan Stanley also failed to ensure that securities accounts and recommended that representatives of retirees, such as variable annuities and the cost-based managed accounts, have been duly considered for the relevance and other concerns.

FINRA also found that Miller failed to take appropriate measures to reasonably control Kazacos and Isabella to prevent unsuitable investment recommendations and failed to disclose the risks for many customers.

In resolving these issues, Morgan Stanley, Kazacos and Miller neither admitted nor denied the findings, but consented to the entry of FINRA conclusions.

Under FINRA rules, a company or person named in the complaint, as Isabella, may file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, the restitution of gains related to the breach, and payment of restitution. The issuance of a disciplinary complaint represents the initiation of formal proceedings by FINRA in which findings as to the allegations in the complaint were not made and does not represent a decision that any of the allegations contained in the complaint. Because the complaint against Isabella is unadjudicated, interested persons May want to contact the respondent before drawing any conclusions regarding the allegations of the complaint.

Investors can obtain more information and the disciplinary record of any FINRA registered broker or brokerage firm by using FINRA BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2008, members of the public used this service to conduct the review of 11.6 million broker or firm records. Investors can access BrokerCheck at www.finra.org / brokercheck or by phone at (800) 289-9999.

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms, writing and enforcing rules and federal laws on securities, and to inform and educate the public, providing trade reporting and other industry utilities and administration of the largest forum of dispute resolution for investors and businesses .

For more information, please visit our Web site at www.finra.org.



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