Morgan Stanley Fined $7M for Broker Misconduct
March 25, 2009 (PLANSPONSOR.com) - The Financial
Industry Regulatory Authority (FINRA) announced that it has
fined Morgan Stanley & Co. $3 million and ordered it to
pay more than $4.2 million in restitution to resolve charges
that its supervisory system failed to prevent brokers from
violating FINRA rules on handling of IRA rollover/retirement
accounts.
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, whom
FINRA said persuaded 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. The restitution will go to 90 Rochester, New
York-area retirees, FINRA said.
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% each year, according to the
announcement.
In a formal disciplinary complaint filed Wednesday,
FINRA charged Isabella with engaging in similar
misconduct, and 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. He 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 said 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, according to the
announcement, 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. Morgan Stanley has previously settled
with 101 other customers of the two brokers.