SEC Sanctions Morgan Stanley to $3.6 Penalty for Failure to Protect Against its Personnel Misusing or Misappropriating Funds
Posted on Wednesday, July 18th, 2018 at 5:14 pm
In June 2018, the Securities and Exchange Commission (SEC) sanctioned Morgan Stanley Smith Barney to pay a $3.6 million penalty for its failure to protect against its personnel misusing or misappropriating funds from client accounts. Morgan Stanley previously repaid the four advisory clients in full plus interest.
According to the SEC, Morgan Stanley “failed to have reasonably designed policies and procedures in place to prevent its advisory representatives from misusing or misappropriating funds from client accounts. The order further finds that although MSSB’s policies provided for certain reviews of disbursement requests, the reviews were not reasonably designed to detect or prevent such potential misconduct.”
According to the order, Morgan Stanley’s insufficient policies and procedures contributed to its failure to detect or prevent financial advisor Barry Connell (CRD# 3070984) from misusing or misappropriating approximately $7 million out of four advisory clients’ accounts in 110 unauthorized transactions occurring during a period of nearly a year.
In June 2018, FINRA suspended Connell indefinitely after he failed to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance.
In April 2018, a former client of Morgan Stanley won an award in a FINRA arbitration for compensatory damages for $6,000,000 plus $2,500 in filing fees for losses sustained. The investors were clients of financial advisor Barry Connell
In March 2018, FINRA suspended Connell indefinitely after he failed to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance.
In February 2017, the Securities and Exchange Commission (SEC) charged Connell with stealing money from investors to settle a private lawsuit among other misuses. It is alleged that Connell misappropriated approximately $5 million from investment advisory clients within the same family to cover his personal experiences and fund his lavish lifestyle, which included a rental home in Nevada, a country club membership, and a private jet. The SEC alleges that between December 2015 and November 2015, Connell made unauthorized cash transfers and third-party wire transfers to third-party payees to benefit his lavish lifestyle. It is alleged that Connell used blank checks and falsified authorization forms that represented that he received verbal request from his clients for those third-party wires, checks and journals in more than 100 unauthorized transactions.
In January 2017, FINRA suspended Connell as a broker after he failed to respond to FINRA request for information.
Connell was registered with Morgan Stanley in Ridgewood, New Jersey from 2009 to 2016 and with UBS Financial Services from 1998 to 2008. In December 2016, Morgan Stanley terminated Connell regarding, “Allegations regarding unauthorized withdrawals and transfers of funds from client’s household accounts to third-party payees, which appear to be for the benefit of the former registered representative.”
Connell has been the subject of nine additional customer complaints, one of which was denied, between 2008 and 2017, according to his CRD report:
December 2017. “Claimant alleged, inter alia, Misappropriation with respect to funds in her accounts – 2009 to 2014.” The customer is seeking $2,193,015 in damages and the case is currently pending.
June 2017. “Client alleges breach of fiduciary duty and that her account was not managed in her best interest. Alleged damages unspecified 2015 – 2016.” The case was settled for $740.
March 2017. “Client’s attorney alleged, inter alia, that the client’s signatures on various checks and account documents were forged by her husband who was the FA on the account. 2010-2016.” The customer sought $3,779,889.80 in damages and the case was settled for $725,000.
December 2016. “Client alleges, inter alia, that investments purchased in her account were unsuitable. 2015.” The client sought $161,549 in damages and the case was settled for $45,000.
November 2016. “Claimants alleged that between December 2015 and November 2016, the FA removed and/or transferred funds from their accounts without their authorization.” The case was settled for $2,531,691.81.
November 2016. “Claimants alleged that between December 2015 and November 2016, the FA removed and/or transferred funds from their accounts without their authorization.” The case was settled for $3,468,308.19.
July 2012. “It is claimed that financial advisor allegedly executed trades without authorization in client’s accounts. No specific timeline provided.” The customer sought $700,000 in damages and the case was settled for $55,000.
November 2008. “Claimant alleges, inter alia, that from September 25, 2008 through January 15, 2009, the financial advisor failed to follow instructions to sell Wachovia stock in a timely manner.” The customer sought $29,274 in damages and the case was settled for $20,000.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Morgan Stanley may be liable for investment or other losses suffered by Connell’s customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.