Monthly Archives: November 2022

On November 21, 2022 FINRA censured Morgan Stanley Smith Barney LLC for its failure to supervise nine registered representatives who recommended potentially high risk securities to their customers.  The firm previously paid restitution to some of the customers who suffered losses as a result of its conduct.   FINRA ordered Morgan Stanley to pay restitution to the remaining customers.

From January 2014 through December 2018, Morgan Stanley failed to reasonably supervise nine registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy.  Each of the nine representatives recommended that customers purchase securities in quantities that were subject to Morgan Stanley’s pre-approval requirement but did not complete a Plan of Solicitation.    The investigation revealed that Morgan Stanley received alerts that some of its registered representatives had made hundreds of recommendations that violated the firm’s Plan of Solicitation policy. The firm’s procedures require that a supervisor at the firm review and approve the Plan of Solicitation prior to the representative recommending the security. Each of the representatives recommended that customers purchase securities in quantities that were subject to the firm’s pre-approval requirement but did not complete a Plan of Solicitation.  Some of the recommended securities were high risk and inconsistent with certain of their customers’ moderate or conservative risk tolerances. The firm did not take appropriate action in response to alerts that its representatives had violated its own policies.  In particular, the firm did not evaluate whether the recommendations were consistent with the customers’ investment profiles. These customers incurred realized losses as a result of many of the recommended trades. Subsequently, the firm improved its enforcement of the Plan of Solicitation policy, including by directing review of Plan of Solicitation alerts to a central review unit.

Without admitting or denying the findings, the firm consented to the entry of findings that it failed to reasonably supervise registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy.  Morgan Stanley was fined $200,000.00 and required to pay $497,897, plus interest in restitution to affected customers.

Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential.   Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.

On November 11, 2022, FINRA sanctioned Douglas Fulton Kaiser of Boca Raton, Florida.  Kaiser, who is registered with Westpark Capital Inc., was fined $5,000.00 and suspended from association with any FINRA member in any principal capacity for three months.  In addition, he is required to attend and satisfactorily complete twenty hours of continuing education concerning supervision.  The sanctions stemmed from failing to supervise WestPark’s markups and markdowns for US Treasury securities.

Through the investigation, FINRA learned that Kaiser was the supervisor of WestPark’s fixed-income trading desk while a representative, who was recommending an unsuitable investment strategy characterized by the active, short-term trading of U.S. Treasury securities and charging excessive markups on certain transactions involving U.S. Treasury securities was registered at the firm. In his role, Kaiser was responsible for reviewing markups and markdowns on fixed-income transactions. For eight customers who suffered losses due to the representative’s Treasury-trading strategy, the representative charged, and Kaiser approved, markups or markdowns more than the firm’s policies allowed.   Kaiser failed to recognize and respond appropriately to the elevated markups and markdowns.  Moreover, for five of the eight customers, Kaiser miscalculated the markdowns the representative charged for certain sales on one day. Those sales were part of a group of same-day sales followed by purchases the following day that collectively amounted to “proceeds” transactions.

Without admitting or denying the findings, Kaiser consented to the sanctions and to the entry of findings that he failed to supervise his member firm’s markups and markdowns for U.S. Treasury securities. The suspension is in effect from December 5, 2022, through March 4, 2023.

Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential.   Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.

On November 3, 2022, FINRA censured Wedbush Securities Inc., fined the firm $850,000, and required it to certify that the firm’s WSPs and supervisory system are reasonably designed to review the accuracy of account statements sent to customers and to achieve compliance with its obligation to deliver to customers annual privacy notices, margin disclosures, and order execution disclosures.

From January 2013 through December 2018, Wedbush negligently misrepresented on monthly account statements that it sent to approximately 610 customers that certain corporate and municipal bonds were making interest or principal payments when, in fact, the bonds were in default.  The investigation stated that the firm failed to establish and maintain a supervisory system reasonably designed to review the accuracy of account statements it sent to customers. Although the firm received notice when bonds held by customers had defaulted, it did not have any system to verify that such information was reflected in the system the firm used to maintain information about securities held by customers.  In addition, from January 2010 through August 2020, Wedbush failed to deliver to a total of approximately 14,900 customers three types of annual notices and disclosures required by FINRA and SEC rules.  The notices were available on the firm’s website. FINRA found that the firm did not have a supervisory system reasonably designed to achieve compliance with its obligation to deliver annual privacy notices, order execution disclosures, and margin disclosures. The firm’s WSPs required the firm to deliver the privacy notices, order execution disclosures, and margin disclosures to customers on an annual basis. However, the firm did not have any system to verify that such notices were sent to customers who elected to receive materials from the firm via its online platform. Instead, the firm relied on its vendor to deliver these required annual notices and disclosures to customers, but the firm did not take any steps to verify that its vendor had appended the required notices and disclosures to the account statements sent electronically to customers. Ultimately, the firm identified that customers had not been receiving the required notices and disclosures, implemented changes in its delivery process, and self-reported the issue to FINRA.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it negligently misrepresented the default status of bonds on customer account statements.

Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential.   Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.