FINRA bars two ex-Morgan Stanley brokers
Two ex-Morgan Stanley brokers have been barred after allegedly exploiting the 79 year-old disabled co-founder of the Home Shopping Network, with whom one of the brokers was found to have been having an affair.
The Financial Industry Regulatory Authority announced Monday that it had accepted settlements with Ami Forte and Charles Lawrence for, among other things, allegedly violating Municipal Securities Rulemaking Board rules G-8 on books and records, G-17 on fair dealing and G-19 on suitability between September 2011 and June 2012. Forte and Lawrence asked to settle last week while neither admitting nor denying the charges.
“I am pleased that we have been able to reach an amicable settlement with FINRA to resolve this matter and to end potentially expensive and protracted litigation,” Forte said in a press release. “As specified in the settlement, I have admitted absolutely no wrongdoing.”
FINRA found that the pair exploited Roy Speer, the wealthy co-founder of the Home Shopping Network who died in August 2012 and was suffering from severe cognitive impairment. The self-regulatory group said Forte and Lawrence conducted transactions in Speer’s accounts without his authorization. Speer had been Forte's customer since the late 1990s, FINRA found, alleging that the two also had a romantic relationship going back to around that time.
"Protection of senior and vulnerable investors is a top priority for FINRA,” said Jessica Hopper, senior vice president and acting head of FINRA's Department of Enforcement said. "Churning the account of an elderly customer who suffered from severe cognitive impairment is an egregious violation of the high ethical standards to which FINRA holds all associated persons."
Over half of the 2,800 trades over the ten months were long-maturity bonds, including municipal bonds. Forte and Lawrence generated more than $9 million in commissions during that time, FINRA found.
Speer’s accounts generated about 94% of Forte’s commission revenues and allowed Forte to garner the number one ranking on Barron’s Top 100 Women Financial Advisors list for 2010, 2011 and 2012.
Forte’s lawyer, Robert Pearl of the Naples, Fla.-based Pearl Law Firm believes that FINRA gave Morgan Stanley a “free pass.”
“FINRA alone can explain why it gave Morgan Stanley, a firm which made many millions of dollars off the Speer accounts and was found liable in the underlying Speer arbitration proceeding a free pass but filed charges against the Morgan Stanley personnel who were relying on Morgan Stanley’s management to properly supervise these accounts,” Pearl said in a press release.
During the relevant period the trading in Speer’s accounts took place through trades entered by Lawrence, not Forte, Pearl said.
“Morgan Stanley was not cited by FINRA despite the fact that all the recommendations came from its trading desk,” Pearl said. “It’s curious that Morgan Stanley never got cited,” Pearl added and said that the inaction was “startling.”
FINRA said Forte remained in daily contact with Speer and had overall responsibility for the trading strategy and day-to-day trading in his accounts.
Rule G-19, the MSRB's suitability rule, states that a broker must have “a reasonable basis to believe that a recommended transaction of investment strategy involving a municipal security or municipal securities is suitable for the customer.”
Rule G-17 says brokers must not engage in any deceptive, dishonest or unfair practice.
Through excessive trading, the complaint alleges Forte and Lawrence violated both rules.
After doctors diagnosed Speer as suffering from cognitive impairment, FINRA alleged Forte and Lawrence increased their level of trading.
Forte and Lawrence met frequently with their client and knew he was impaired, FINRA alleged, but never reported that fact to Morgan Stanley. Many of their trades were not suitable for Speer, according to FINRA, such as short-term trading of long-term investment products like bonds with long-term maturity dates.
From June 20, 2012 to June 29, 2012, Speer was hospitalized and was not in contact with Forte, but his accounts had over $14 million in transactions, FINRA found.
The pair also allegedly broke Rule G-8, which requires brokers to obtain and maintain customer records with non-institutional accounts, by exercising discretion in Speer's accounts without written authorization.
Forte is also suing Morgan Stanley and Pearl said the next hearing will be in May.