As the states, SEC and Financial Industry Regulatory Authority (FINRA) crack down on stockbroker fraud and the sales of risky investments, some firms are cleaning up their acts. Others, however, are apparently forging customer risk profiles. At least that is what two former stockbrokers claim in a $20 million whistleblower retaliation lawsuit.
Anyone who has watched the movie, “The Wolf of Wall Street,” knows the antics of boiler room shops like Oakmont Stratton. There are always new shops opening that seem to specialize in all manner of stockbroker fraud. The two ex-brokers who filed this suit didn’t work at some fly-by-night operation, however, they worked at the midtown New York office of Morgan Stanley and their allegations are very serious.
James Boland and Jaime Feldman, his wife, claim that Morgan Stanley allowed brokers to work from home (without proper supervision) and allowed unlicensed interns to cold call potential clients. Worse, the couple claims that Morgan Stanley employees were changing client risk profiles.
As noted in previous posts, stockbrokers have a legal obligation to fully understand their clients risk tolerance, investing experience, financial needs and more. A broker can’t properly recommend an investment without knowing the client’s needs and desires.
As the stock market grows increasingly unstable and many investments fail, some dishonest brokers appear to be going back and changing customer profiles to fit the broker’s needs.
For example, an elderly retired couple that needs their investment monies to support their retirement should not be in risky or illiquid investments. When the market was going up year after year, it was easy to hide mistakes. What was worth $10 today would be worth $11 in a few weeks. That long running bull market may be over, however. [As one broker told us, “a rising market hides all sins.”]
Suddenly as customers go to liquidate their holdings, some are learning that there are no ready buyers (meaning the investment is illiquid) while others find the value of their portfolio has plummeted. A few dishonest brokers simply engage in creative forgery (one broker called it “arts and crafts”) where records are simply changed to indicate the investor accepted riskier investment strategies.
Obviously, we have no idea if the allegations against Morgan Stanley are true. The firm told the industry publication Investment News that the allegations were without merit. A few years ago, however, another former Morgan Stanley employee claimed the company was engaging in stockbroker fraud for allowing brokers to work from home without supervision.
With over 10 billion dollars in recent sales of junk quality shale bonds, retirees suddenly investing billions in questionable structured derivative products and all manner of illiquid alternative investments in consumers’ pockets, we have to believe that there are thousands of viable suitability claims yet to be made.
Investors who are victims of changed records, unsuitable investment recommendations, churning or other forms of stockbroker fraud stand a good chance of getting back their hard earned money. FINRA rules provide for quick, binding arbitration proceedings and the lawyers that handle these claims usually do so on a contingent fee basis meaning there are no legal fees unless there is a recovery.
Think you were the victim of stockbroker fraud or other financial misconduct? Give us a call. All inquiries are protected by the attorney – client privilege and kept confidential. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct).
MahanyLaw – America’s Stockbroker Fraud Lawyers