Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor

Regulation and Compliance > Federal Regulation > FINRA

FINRA Suspends Ex-Morgan Stanley Rep Who Didn’t Disclose Rental Property

By Jeff Berman

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • The broker earned income from a beachfront property in Panama he owned but did not inform Morgan Stanley.
  • The broker also borrowed $307,000 from two clients without informing the firm or gaining its approval.
  • FINRA says he violated FINRA Rules 2010, 3240 and 3270.

The Financial Industry Regulatory Authority has suspended a broker for four months and fined him $7,500 for not disclosing to Morgan Stanley that he owned a beachfront rental property in Panama he was earning income from and that he borrowed $307,000 from two clients, according to FINRA.

Without admitting or denying the findings of FINRA’s investigation, 27-year industry veteran Steven Patrick Melen signed a FINRA letter of acceptance, waiver and consent Tuesday, consenting to the imposition of the regulatory group’s sanctions. FINRA signed the letter Thursday.

Melen was registered as a general securities representative through an association with Morgan Stanley from May 11, 2007, until April 1, 2019, when the firm filed a Form U5 reporting Melen’s voluntary termination, according to FINRA.

On April 8, 2019, Morgan Stanley amended Melen’s Form U5 to disclose that he was under internal review regarding whether he had “borrowed funds from a client, without disclosing the arrangement to the firm,” FINRA said.

That same month, Melen joined LPL Financial and is still registered with them, according to his report on FINRA’s BrokerCheck website.

It was not clear on Friday if Melen’s suspension had started or if he had paid the fine yet.

Morgan Stanley, LPL and Katherine S. Bowles, a partner at the law firm Shustak Reynolds & Partners who represented Melen in the FINRA disciplinary action, did not immediately respond to requests for comment.

In welcoming Melen to LPL in April 2019, the firm said he “reported having served approximately $100 million of client brokerage and advisory assets.”

LPL also noted that “Melen’s life has been full of trials and tribulations, and it is those experiences that have been the driving force in how he approaches business.” Melen was “diagnosed with terminal stomach cancer in 2008, he beat the odds, strengthening his resolve in all he approaches and inspiring ways he can serve others,” LPL added.

More Details

In September 2016, while undergoing medical treatments, Melen borrowed $150,000 from a friend and brokerage client who was 87 years old at the time, according to FINRA. That loan was “interest-free and not memorialized in writing,” it said, noting that Melen “repaid the loan in full in January 2017.”

On Sept. 20, 2017, Melen borrowed an additional $110,000 from the same client but the broker agreed to pay interest, according to FINRA. Melen repaid the loan with interest in January 2018 and, that same month, borrowed $25,000 from a second client of his with whom he had a close personal relationship, FINRA said. The broker agreed to pay interest on that loan as well, it noted.

Melen made partial repayments in April and May 2018. In August that year, Melen borrowed an additional $22,000 from the same client and again agreed to pay interest, according to FINRA. In August 2018, Melen repaid the second loan with interest plus the balance due on the first loan, FINRA said, adding that neither client complained.

However, Morgan Stanley’s written policies and procedures prohibited employees from borrowing money from clients without prior written approval from the firm, and he did not inform the firm about the loans. Nor did he have authorization from the firm, according to FINRA.

Melen also “falsely attested to Morgan Stanley in 2017 and 2018 that he had not borrowed money from any customer in the past 24 months,” FINRA alleged.

Additionally, in October 2013, Melen bought beachfront property in Panama, originally intended to serve as a vacation property, according to FINRA. One year later, however, he decided to rent it out for income, FINRA alleged.

From October 2013 to April 2019, Melen received about $200,000 in compensation from the property, FINRA said. He did not disclose the rental property to Morgan Stanley in writing. Nor did he identify it on his annual attestations and, in 2017, “affirmatively stated to the firm that he did not participate in any outside business activities that required disclosure,” according to FINRA.

As a result of his actions, Melen violated FINRA Rules 2010 (governing standards of commercial honor and principles of trade), 3240 (governing borrowing from or lending to clients) and 3270 (governing outside business activities), FINRA alleged.

Jeff Berman

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.