An industry arbitration panel has ordered Morgan Stanley to pay a senior client $843,000 in compensatory damages for failing to protect her from financial fraudsters.
The Financial Industry Regulatory Authority made the award Monday to Marjorie Kessler, 76, of Florida, finding the company liable for negligence. The two parties will share hearing costs.
Kessler, on behalf of herself and family trusts, asserted that Morgan Stanley was liable for negligence, breach of fiduciary duty and duties of care owed to a senior investor, as well as breach of contract, in not protecting her from internet scammers. She had requested $1.75 million in compensatory damages plus costs.
Morgan Stanley, which denied the claims, had asked that the case be dismissed.
Kessler, a 75-year-old widow at the time, was defrauded of nearly $1.75 million "due to Morgan Stanley’s clear breach" of FINRA rules and long-standing securities industry standards designed to protect elderly clients, according to her statement of claims. She was targeted by a “customer support” or “government imposter” scam "that scared her into believing her identity had been stolen and used in child pornography activity and that the government was about to suspend her Social Security number and freeze all of her assets for years," it said.
Scammers convinced Kessler that to protect her savings, she had to rush to convert her money into cash and gold bars to be delivered to couriers, and cryptocurrency, which would be deposited in a U.S. Treasury account under her new Social Security number, the claim said, noting that over 88,000 seniors older than 60 fell victim to such fraud in 2022 alone.
"Despite glaring red flags and obvious warning signs of financial exploitation," Kessler's financial advisor authorized and facilitated her sudden withdrawal of over $2 million from a line of credit and the liquidation of assets from a life insurance trust — roughly a third of her life savings — during nine days in 2023, according to the statement of claim.
The scammers coached her on how to persuade her Morgan Stanley advisor to wire the funds to her Wells Fargo bank account. At one point, the internet scammers, who had access to Kessler's account, used funds to buy over $1.6 million in gold bars, which were delivered to her Florida condo, the claim stated. They told her to box the gold bars and give them to a government courier outside the condo, for deposit into an escrow account, it said.
They also used $100,000 from the Wells Fargo account to but cryptocurrency, the claim said.
A Morgan Stanley spokesperson told ThinkAdvisor by email Friday, “We sympathize with Ms. Kessler as the victim of a third-party fraud, but it is important to keep in mind that this fraud did not occur at Morgan Stanley. Further, the firm should not be held responsible for her losses as Ms. Kessler made misstatements to her financial advisor about the purpose of the transfers, and authorized them to be sent to a third-party bank account held in her name.”
Lloyd Schwed, Kessler's lawyer, told ThinkAdvisor by email: “Morgan Stanley ignored multiple red flags and thought it was perfectly normal for a 75-year-old widow to suddenly ask to borrow $2.4 million in a nine-day period to buy not one but two houses. Elder fraud has reached epidemic proportions in this country with $3.4 billion in losses in 2023 alone. Hopefully, this award will send a powerful message to Wall Street: protect your elderly clients or you will pay the price.
“The arbitrators correctly decided that Morgan Stanley failed to follow two FINRA rules that were specifically designed to protect vulnerable senior clients from tech support and government impersonation scams.”
Schwed hasn't sued Wells Fargo on Kessler's behalf but said he is investigating the matter.
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