by Brian Mahany
There are bad stockbrokers who always seem to lose money and then there are BAD stockbrokers – those that are nothing more than common thieves. According to an article in InvestmentNews, one of those really bad brokers was charged with four counts of aggravated theft after cops say he stole money from clients including an 81 year old retiree and a local church. Securities regulators have also charged the broker.
Claims of outright theft are rare but they do happen. In this case, the Financial Industry Regulatory Authority (FINRA) says James McKee defrauded several investors over a 5 year period.
In many cases, McKee engaged in what is called “selling away” meaning that a broker solicits clients to make investments not offered by the broker’s employer. The customers frequently believe they are purchasing something recommended by the brokerage firm and often rely on the good reputation of that firm when making their purchase decision. In McKee’s case, he worked for several reputable firms including Morgan Stanley Smith Barney, Berthel Fisher & Co. and LPL Financial.
Already, Morgan Stanley settled on one claim against McKee according to records obtained from FINRA.
Broker dealers can’t police what they don’t see. That’s why stockbrokers and investment advisers are required to notify their employer and obtain permission if they wish to sell some type of investment not offered by the employer.
Brokerage firms can be held liable for the actions of their agents and representatives even if they did not know anything about the transaction. The test is whether customers reasonably thought the broker was acting on behalf of the company.
For example, buy a boat from your stockbroker in a casual sale and its pretty obvious that the boat is not a product offered through the brokerage firm. In that transaction it is highly unlikely that a court or arbitration panel would hold the brokerage firm financially responsible even if the boat was a lemon. Invest in a promissory note, real estate trust or stock in a private company and both the firm and individual broker may become liable even though the firm had no idea of what was going on.
If the “selling away” isn’t already bad enough, FINRA also says that McKee concealed in his interest in the investments creating a conflict of interest.
Was this just a miscommunication? We don’t thinks so. Published reports also say McKee was charged with falsifying records to keep his employer from discovering the violation.
If you were misled by a stockbroker or financial professional, give us a call. We gladly offer no fee consultations and all calls are confidential. The investment fraud lawyers at Mahany & Ertl have helped many people get back their hard earned money. For more information, contact attorney Brian Mahany at (direct) or by email at .
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Portland, Maine; Detroit, Michigan & Minneapolis, Minnesota. Services available in many other jurisdictions.
* Although Morgan Stanley settled one claim, their actions do not necessarily mean that McKee is guilty. As of this writing, his charges remain pending.