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Regulation and Compliance > Federal Regulation > FINRA

Morgan Stanley Must Pay Client $160K Over Broker's Trading

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What You Need to Know

  • An arbitration panel ordered Morgan Stanley to pay $160,000 in damages to a client who alleged the firm was guilty of negligence and failing to supervise an ex-rep.
  • The ex-rep was ordered to pay the same amount. Both he and Morgan Stanley were also ordered to pay the client $10,000 in legal fees.
  • Merrill Lynch, for which the ex-rep previously worked, was also named in the complaint but was not found liable.

Morgan Stanley must pay $160,000 in compensatory damages to a client who alleged the firm was guilty of negligence and failing to supervise a former broker over the trading of unspecified securities in the client’s account, according to an arbitration award posted on FINRA’s website on Thursday.

A three-person panel of public arbitrators in Phoenix, Arizona, agreed that the wirehouse was liable for those actions but not for other allegations made by the client.

The panel also ordered the former Morgan Stanley broker, Francisco Javier Valenzuela, to pay $160,000 to the client, Carlos Ramon Tapia Sanchez, saying he was liable for misrepresentation, manipulation and fraud. He served as a broker for Morgan Stanley from 2015-2018, according to FINRA’s BrokerCheck website. He is not currently registered as a broker or advisor, according to BrokerCheck.

Valenzuela and Morgan Stanley are also “jointly and severally liable for and shall pay” the client $10,000 in attorneys’ fees, pursuant to the FINRA Dispute Resolution Services Arbitrator’s Guide.

The claimant had also named Merrill Lynch as a respondent. Valenzuela had served as a broker for that company from 2010-2015, according to BrokerCheck. But the arb panel didn’t order Merrill to pay the client anything.

Morgan Stanley and Merrill declined to comment on Friday.

“The claimant reached an amicable confidential agreement with Merrill Lynch … prior to the arbitration proceeding,” Burt Newsome, the claimant’s attorney, told ThinkAdvisor by email on Saturday.

Elder Abuse, Conversion Claims

In his statement of claim, Sanchez also asserted that the respondents were guilty of elder abuse and conversion. But the arb panel did not award anything for those claims.

The claimant initially requested compensatory damages of $500,000. But, at the hearing, he lowered the amount requested to $357,622 in compensatory damages and attorneys’ fees.

In its statement of answer, Merrill Lynch requested that the claims be denied in their entirety and that it be paid legal fees and costs associated in defending the action. Merrill requested that the claims against it be dismissed and that it be awarded arbitration costs and attorneys’ fees.

The panel denied a motion by Morgan Stanley to dismiss the claim of elder abuse.

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