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Regulation and Compliance > Federal Regulation > FINRA

Morgan Stanley Loses FINRA Arb Case on Botched Options Trading

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What You Need to Know

  • The more than $130,000 in compensatory damages awarded by the FINRA arbitration panel was significantly less than what the claimant had sought.
  • The client alleged the wirehouse was negligent and failed to supervise when trading of Tesla options wasn’t executed properly by one of its reps.
  • Morgan Stanley was recently ordered to pay another client $100,000 over failure to supervise.

Morgan Stanley must pay over $130,000 in compensatory damages and over $8,000 in legal and other fees and costs, plus interest, to a client who alleged the firm was negligent and failed to adequately supervise when trading of Tesla options wasn’t executed properly by one of its reps, according to a Financial Industry Regulatory Authority arbitration award on Friday.

Morgan Stanley declined to comment on Monday. Its rep, Kevin Anthony Butler, whom a three-person FINRA arbitration panel also found liable, didn’t immediately respond to a request for comment.

The panel’s decision came only a few days after a FINRA arbitration panel said Morgan Stanley must pay $100,000 in compensatory damages and $4,900 in legal and other fees and costs, plus interest, to a client who alleged the firm failed to adequately supervise when unsuitable investments were made on her behalf.

Butler is a 38-year industry veteran who has been affiliated with the wirehouse since 2009, according to his report on FINRA’s BrokerCheck website. He has been a FINRA-registered broker since July 1983 and a registered advisor since 2020. He leads The Butler Group at Morgan Stanley in Norwell, Massachusetts.

In the statement of claim, Andre Danesh asserted that the respondents were liable due to “negligence; erroneous trading; execution error; failure to properly execute trade; negligent management and supervision.” The causes of action related to Tesla options, he said.

In the statement of claim, Danesh requested compensatory damages of $1.6 million, compensation for his costs and “any other and further relief as deemed warranted.” At the end of the hearing, he also requested unspecified attorneys’ fees.

The FINRA arbitration panel, however, awarded only $130,315 in compensatory damages, $8,016 in costs and $600 to reimburse Danesh for the nonrefundable portion of the filing fees previously paid to FINRA Dispute Resolution Services. The claimant was also awarded interest on the award at the rate of 12% per annum from Feb. 26, 2020, until the award is paid.

Morgan Stanley and Butler requested that the arbitrators dismiss all claims in the statement of claim in their entirety, that they be awarded their legal costs, and expungement for Butler.

Attorney David W. Sparrow of Hewlett, New York, who represented Danesh, did not immediately respond to a request for comment on his client being awarded significantly less money than he requested.

Morgan Stanley and Butler are also on the hook for $11,200 owed to FINRA for hearing session fees, the panel said.

(Pictured: Morgan Stanley headquarters in New York; Photo: Bloomberg)


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