WASHINGTON – Former Morgan Stanley broker Terry Lee McCoy has agreed to pay $15,000 and be barred from acting as a securities principal in order to settle Financial Industry Regulatory Authority charges that he violated the Municipal Securities Rulemaking Board’s supervision rule.
McCoy, who neither admitted nor denied FINRA’s charges, worked out of Palm Harbor, Fla. FINRA registration information shows that he was there from 1999 until 2016, and has worked at several other firms since becoming a broker in 1986.
The charges stemmed from what FINRA said was McCoy’s failure to properly supervise two brokers in his office between September 2011 and July 2012, when the pair were allegedly engaged in “excessive and unsuitable trading” without authorization in the accounts of an elderly and wealthy customer.
Under Morgan Stanley policy, McCoy was responsible in his capacity as branch manager for supervising the business conducted in his branch and the activities of each employee. FINRA examiners found that during the months cited two brokers, identified as “CF” and “AL,” used discretion without proper authorization to excessively and unsuitably trade six accounts owned by a customer identified by FINRA as “RS.”
RS was a sophisticated businessman, according to FINRA, but by this time was 79 years old and “showed significant signs of dementia and impaired learning and memory abilities.” He died in August 2012, a month after a court found him legally incompetent due to "dementia and/or Alzheimer's disease," FINRA said.
CF and AL’s trading in RS’ accounts included placing more than 2,000 trades in “a wide assortment of complex corporate and municipal bonds,” FINRA said.
“In many instances, they placed these trades by exercising discretion in the accounts, even though none of the accounts were approved for discretionary trading by the firm,” FINRA found. “Further, in many instances, the trading activity included moving in and out of positions in the same bond in a matter of a few weeks or months. As a result of the excessive trading, RS's accounts generated commissions of over $9 million dollars during the relevant time period.”
FINRA said McCoy failed to act on multiple “red flags.” He had information on the high cost-to-equity and losses in the accounts and Morgan Stanley’s system generated ten reports on exceptions in the accounts, but the employee designated by McCoy to review those reports allegedly did not contact the customer about them. McCoy was in regular contact with RS during this time, said FINRA. McCoy also failed to detect that the investment objectives for the accounts had been changed to more aggressive goals without RS’ approval, FINRA found.
Further, FINRA alleged, McCoy failed to detect that CF and AL were trading without authorization, even though McCoy was aware that RS was hospitalized during some of that time.
McCoy violated MSRB Rule G-27 on supervision, FINRA concluded. That rule requires that muni professionals supervise the conduct of their municipal securities activities and ensure compliance with applicable MSRB rules and federal securities laws. In addition to his $15,000 G-27 fine, McCoy also agreed to an additional $60,000 penalty for violations of non-muni rules.
McCoy’s fine is due immediately upon re-association with a FINRA member firm or request for relief from his disqualification, though he has not been registered with any firm since 2016. His attorney did not respond to a request for comment.