Monthly Archives: February 2017

Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle SEC charges that the firm made unsuitable recommendations about single inverse exchange traded fund (“ ETF”)  investments to its advisory clients.  According to the SEC:

1.Morgan Stanley apparently failed to ensure that clients understood the risks involved with purchasing inverse ETFs.

2.Morgan Stanley never obtained a signed client disclosure notice from several hundred clients.    That notice stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.

3.Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, where the securities were held long-term – leading to losses for many of the clients.

4.Morgan Stanley apparently failed to follow through having a supervisor conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.

5.Morgan Stanley did not monitor the single-inverse ETF positions on an ongoing basis
organ Stanley did not monitor the single-inverse ETF positions on an ongoing basis.

6.Finally, Morgan Stanley did not ensure that certain financial advisers completed single inverse ETF training.

Our firm is investigating investor claims relating to Morgan Stanley single inverse ETFs. We provide free initial evaluations as to whether an individual or institutional investor might have a good claim for these investments.

One of the most common investments sold by financial advisors to investors is the Variable Annuity (VA). These products are often sold because they pay among the highest commissions to the advisor. In recent years, we have seen many cases involving guaranteed income riders to these variable annuities. Many of these riders provided guaranteed income or growth to the investment and are usually the most important reason the VA is sold in the first place. Problems sometimes arise with these riders when investors take withdrawals from their VAs that exceed the amounts permitted by them. When this happens, the guarantees can be either lost forever or capped at the time of the withdrawal, preventing further growth.

A common scenario involves an investor needing some cash to address an important need. Perhaps a new house is being purchased, a wedding needs to be funded, or a dream vacation is booked. When the investor discusses this cash need with his/her advisor, there is no discussion about how a withdrawal from the VA would impact the guaranteed income rider, so the advisor recommends that the amount be withdrawn for the VA, even when other sources are available. Once this error is later discovered by the investor, the only option is usually to file a FINRA arbitration against the advisor and his brokerage firm for not disclosing the risks of this withdrawal and causing the future losses to income.

If you are an individual or institutional investor who has a concern about a Variable Annuity or a VA rider, please feel free to contact us for a free initial evaluation. You may have a good claim for a FINRA arbitration to recover your losses.

On January 3, 2017, Preet Bharara, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that former Morgan Stanley financial advisor Barry Connell had been arrested and charged with wire fraud and aggravated identity theft for allegedly using his position as a financial adviser at Morgan Stanley to defraud multiple clients out of at least $5 million over a one-year period. (“Former Financial Adviser At Global Bank Charged In Manhattan Federal Court With Multimillon-Dollar Scheme To Defraud Clients”).

According to the press release that announced the indictment and arrest of financial advisor Connell, “as alleged, Barry Connell used his clients’ bank accounts as his own, siphoning off millions of dollars to pay for his extravagant lifestyle, including a country club membership and private jet expenses.”

According to the allegations in the indictment that was unsealed in the Manhattan federal court, from December 2015 to November 2016, Mr. Connell effected numerous unauthorized transactions from five accounts belonging to a single family of Morgan Stanley clients, and as a result, defrauded the clients of at least approximately $5 million.

It is alleged that, in some instances, Mr. Connell effected the fraudulent transactions by submitting Morgan Stanley forms falsely stating that he had received client instructions authorizing wire transfers to third parties for the client’s benefit, when in fact he had not received client authorization and the wire transfers were for financial advisor Connell’s own benefit. In other instances, Mr. Connell effected the fraudulent transactions by using one client’s checks, which had been intended only to pay the client’s bills, to instead pay for his own expenses including a year’s rent for a house near Las Vegas, country club membership fees, and private jet expenses.

Financial advisor Connell also allegedly paid bills for a credit card account in his spouse’s name, and made payments for his own benefit to automobile dealerships, an entertainment company, and a yacht company. Financial advisor Connell’s registration records indicate that, at the time of the events in question, he had been associated with the Morgan Stanley branch office located in Ridgewood, New Jersey.

Copies of both the U.S. Department of Justice press release and the indictment of financial advisor Connell can be found at: https://www.justice.gov/usao-sdny/pr/former-financial-adviser-global-bank-charged-manhattan-federal-court-multimillon-dollar.

If you are an individual or institutional investor who has any concerns about your investments with financial advisor Barry Connell or Morgan Stanley, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).