Colling, Gilbert, Wright & Carter Securites Fraud

Morgan Stanley to Pay More than $7 Million to Resolve FINRA Charges Relating to Misconduct in Early Retirement Investment Promotion

Washington, DC - The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Morgan Stanley & Co. $3 million - and ordered it to pay more than $4.2 million in restitution to 90 Rochester, NY-area retirees - to resolve charges that its supervisory system failed to detect and prevent brokers from persuading Eastman Kodak Company and Xerox Corporation employees to take early retirement based upon unrealistic promises of consistently high investment returns and by espousing unsuitable investment strategies.

FINRA found that Morgan Stanley failed to reasonably supervise the activities of Michael J. Kazacos and David M. Isabella, two former registered representatives in its Rochester branch office. FINRA has permanently barred Kazacos from the securities industry for committing numerous violations of FINRA rules in connection with his solicitation and handling of IRA rollover/retirement accounts, such as making unrealistic predictions that customers would earn investment returns of 10 percent each year.

In a formal disciplinary complaint filed today, FINRA charged Isabella with having engaged in similar misconduct. The matter will be adjudicated before a three-member FINRA Hearing Panel. FINRA also found that Ira S. Miller, the manager of Morgan Stanley's Rochester branch, failed to reasonably supervise both representatives. Miller was fined $50,000, suspended from acting in a principal capacity for one year and ordered to re-qualify as a principal before serving in such capacity in the future.

FINRA found that as a result of the misconduct at least 184 customers suffered financial hardships, including market losses, a reduction in principal and the inability to sustain expected withdrawal rates. In many cases, the customer's initial investment was eroded by market declines and the customer's monthly withdrawals were not funded by income but were really distributions of principal. Some customers were forced to return to work at a greatly reduced income in order to meet their basic living expenses. FINRA has ordered Morgan Stanley to pay restitution to 90 former customers of Kazacos or Isabella who sustained losses. The firm has previously settled with 101 other customers of those brokers.

"Protecting investors who have retired or are considering retirement has been one of FINRA's top priorities," said Susan L. Merrill, Executive Vice President and Chief of Enforcement. "Brokerage firms and brokers who serve investors considering retirement must ensure that their customers are given suitable investment recommendations based upon reasonable assumptions of market performance and are given thorough disclosure of investment risks.
The supervisory failures of Morgan Stanley and its management 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 through 2003, Kazacos persuaded retirees and potential retirees to invest their retirement assets with him by representing that these investors would earn 10 percent returns each year and would be able to satisfy their income needs by withdrawing annually a similar percentage for living expenses without reducing their principal.
Kazacos' statements encouraged several individuals to move their retirement accounts to Morgan Stanley, with some deciding to retire sooner than they otherwise might have.

FINRA found that Kazacos told customers in their 50s that, even though they had not reached the minimum age for taking withdrawals from their qualified retirement accounts (59-and-a-half), they could begin taking systematic distributions from their accounts, without penalty, by relying upon Section
72(t) of the Internal Revenue Code. FINRA also found that Kazacos failed to inform these customers of the risks associated with his recommended investment strategies.

FINRA further found that, once Kazacos began servicing the retirement accounts - which were often the only source of income for the retirees - he implemented unsuitable investment strategies that exposed the accounts to greater risk, particularly in a declining market, and reduced the principal in many accounts. He invested many of the customers in mutual funds, with an unsuitably high concentration in equity funds. Kazacos also recommended unsuitable variable annuity transactions.

As to Isabella, a former Xerox employee, FINRA charged that from 2000 through 2003, he solicited many of that company's retirees and potential retirees to invest with him at Morgan Stanley. Isabella allegedly represented to prospective customers that, if they invested their retirement money with him, they would earn approximately 10 percent returns or more each year and be able to satisfy their income needs by withdrawing a consistent amount of money each year without reducing their principal.

FINRA found that Morgan Stanley failed to enforce a reasonable supervisory system to ensure that Kazacos and Isabella provided customers with appropriate risk disclosures concerning their retirement accounts. During the relevant time period, Kazacos and Isabella generated approximately $15.4 million in gross commissions. The firm knew or should have known that these representatives were actively marketing their early retirement programs to retirees and potential retirees. Nevertheless, the firm failed to take reasonable steps to ensure, among other things, that customers received proper risk disclosures and that Kazacos and Isabella did not promise or promote unrealistic investment returns. FINRA further found that Morgan Stanley also failed to ensure that the securities and accounts that those representatives recommended for the retirees, such as variable annuities and fee-based managed accounts, were properly reviewed for suitability and other concerns.

FINRA also found that Miller failed to take appropriate action to reasonably supervise Kazacos and Isabella to prevent their unsuitable investment recommendations and failures to disclose risks to many customers.

In settling these matters, Morgan Stanley, Kazacos and Miller neither admitted nor denied the findings, but consented to the entry of FINRA's findings.

If you were persuaded to take an early retirement from your employer based on advise and assurances from your investment advisor or insurance agent, you may have a claim for damages (negligent advice to retire). We are currently investigating and filing claims on behalf of numerous retirees who were given unsuitable and/or fraudulant advice regarding the investment of their retirment funds. Please contact our office for a free case evaluation. Thank you.

Labels: broker misconduct

According to a March 12, 2009 Reuters article a Birmingham, Alabama FINRA arbitration panel awarded $187,000 to a retired cattle farmer from York, Alabama for losses suffered in Morgan Keegan bond funds.

This is believed to be the largest arbitration award against Regions Financial Corp.'s (NYSE:RF) Morgan
Keegan division for its sale of bond funds that cost investors an estimated 2 Billion
Dollars.

The Morgan Keegan bond funds that are reportedly the subject of hundreds of
investor arbitrations include the following:

* Regions Morgan Keegan Select High Income-A, (Sym: MKHIX)
* Regions Morgan Keegan Select High Income-C, (Sym: RHICX)
* Regions Morgan Keegan Select High Income-I, (Sym: RHIIX)
* RMK High Income Fund, (Sym: RMH)
* RMK Strategic Income Fund, (Sym: RSF)
* Regions Morgan Keegan Select Intermediate Bond Fund-A,
(Sym: MKIBX)
* Regions Morgan Keegan Select Intermediate Bond Fund-C,
(Sym: RIBCX)
* Regions Morgan Keegan Select Intermediate Bond Fund-I,
(Sym: RIBIX)
* RMK Multi-Sector High Income, (Sym: RHY)
* RMK Advantage Income, (Sym: RMA)

Since the litigation began, the funds have been sold and have been renamed to Helios to reflect the funds' new management group.

Our office is currently filing and litigating arbitration claims related to RMK bond fund losses. If you have losses associated with any of the above RMK Bond and Income Funds, please contact our office for a free case evaluation. Thank you.

According to a March 20, 2009 NY Times article, a federal judge has ruled that Wells Fargo (formerly Wachovia) must reinstate a former reservist to his job as a financial adviser and pay him at least $1 million.

This ruling has particular implications for servicemen and women returning to their former jobs after serving in the military. According to employee rights advocates, the judge's decision affirms that commission-based employees who return to their jobs after service must be compensated in a manner comparable to what they were earning when they left. This is believed to be the largest award in an employment case of this nature.

The case involved Michael Serricchio, now 35, who had worked as a financial adviser in Stamford, Conn., before spending more than two years on active duty with the Air Force Reserve beginning in September 2001. When he returned from service, his employer (Prudential Securities), had merged into Wachovia Securities which was recently purchased by Wells Fargo. At the time, Wachovia offered him a job paying only a $2,000-a-month advance on his commissions, much less than the $80,000 a year he was earning when he left for active duty.

The jury returned a verdict finding Wachovia had violated Serricchio's rights under the Uniformed Services Employment and Re-employment Rights Act, which requires employers to provide workers returning from military service a salary, status and seniority in line with where the were before they left.

The Judge was charged with determining the damages. She did so, affirming the jury’s verdict and awarding Mr. Serricchio about $400,000 in back pay and interest, $390,000 in punitive damages, and reimbursement for his legal fees, which are likely to top $500,000. His new salary will be $144,000 for one year, the court ordered, after which he will be back to working on commission.

This is yet another setback for Wachovia and a financial services industry that has been besieged by scandal, losses, bankruptcy and customer suits.

If you have a complaint against your brokerage firm, you may contact us for a free case evaluation.

According to a March 3, 2009 article in the Memphis Commercial Appeal newspaper, sportscaster Tim McCarver was awarded $100,000.00 by a FINRA arbitration panel for losses he experienced in the RMK Funds.

Mr. McCarver, a Memphis native invested $400,000 in four closed-end mutual funds and one open-end fund that managed and operated by Regions Morgan Keegan. Those funds suffered catastrophic losses, primarily related to the alleged over concentration on subprime mortgage polls and other collateralized debt obligations (CDOs).

Morgan Keegan & Co. of Memphis, whose Morgan Asset Management ran the funds until July when Hyperion Brookfield Asset Management took over seven funds in all, had a different perspective.

Of significance for future arbitration claims related to RMK losses, the arbitration panel turned down Morgan Keegan's request to have the expert testimony ruled misleading. Also, the attorney representing Mr. McCarver indicated this case was factually one of his weaker claims as McCarver was advised, at one point, to sell the fund shares by his Morgan Keegan broker, but declined to do so.

If you have lost money in one or more RMK mutual funds, please contact our office for a free case evaluation. Thank you.

Labels: broker misconduct