A retired inventor suffering from health issues has filed an arbitration claim against Morgan Stanley, alleging that it failed to adequately supervise its financial advisor’s handling of his multi-million dollar account, according to the law firm representing him.
Florida-based law firm Vernon Litigation Group filed the claim with the Financial Industry Regulatory Authority (FINRA), alleging lack of supervision, negligence and breach of fiduciary, excessive and unauthorized trading, significant tax liability and fraudulent inducement, according to a statement released Thursday.
According to the claims, the inappropriate over-concentration in high risk sectors, over-trading an excessive number of individual stocks, reached troubling levels in the portfolios of this client and resulted in significant damages to accounts earmarked for retirement. In addition, the actions caused unnecessary tax consequences for this client and benefited only Morgan Stanley with unconscionable transaction costs of more than $1 million.
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FINRA’s arbitration statement indicates that from 2009 through April of 2016, Morgan Stanley broker inappropriately engaged in investments called ‘Master Limited Partnerships’ (MLPs) and other oil and gas investments while ignoring or concealing the risks involved with these investments. Unfortunately, the devastating results of this deceptive strategy, known as ‘selling the winners and holding the losers’, were reflected in high concentrations of these risky products exist in the investor’s account.
The claim further alleges that Morgan Stanley unsuitably created a pattern of taxable gains that avoided realized losses and allowed the broker to tout ‘homeruns’ to the client and the profits he was generating for the account while downplaying the unrealized declines in the account.
Before making an investment, a financial advisor has the responsibility to adequately disclose the risks and to perform the due diligence needed to determine whether it’s suitable based on factors such as a person’s age, net worth and objectives, the law firm said. As such, it seeks not only compensatory damages, but also significant punitive damages and a disciplinary referral to FINRA regulators.
FINRA dedicates a dispute resolution committee which is an arbitration venue for investors with claims against their brokerage firm or financial professional. It provides investors with an opportunity to attempt to recoup their investment losses and is an alternative to filing such claims in court.