After losing his job in April, former Morgan Stanley Smith Barney LLC risk officer, Clifford Jagodzinski, accused his firm of firing him in retaliation for exposing a high-profile Morgan Stanley registered representative's alleged misconduct, including account churning. A copy of Jagodzinski's complaint, filed in federal court in the Southern District of New York, may be found here.
According to his Complaint, in December 2011, Jagodzinski reported that the high-profile wealth manager, Harvey Kadden, engaged in the flipping preferred stocks of various companies that resulted in significant commissions for Morgan Stanley and himself, but losses or insignificant gains for customers. Additionally, Jagodzinski's complaint charged Kadden with manufacturing trades that were "obviously designed to bilk investors."
Kadden, a Barron's Top 1000 adviser, had been hired by Morgan Stanley after a 30-year association with Merrill Lynch. Jagodzinski alleged that Kadden received a $25 million guarantee for joining Morgan Stanley.
As of September 13, 2012, Mr. Kadden's FINRA Brokercheck report does not show any customer complaints or disciplinary action.
In answering Jagodzinski's complaint, filed in federal court, MSSB denied all of the allegations of wrongdoing. Interestingly, MSSB admitted that Jagodzinski also investigated a client complaint that MSSB broker, Bill Siegel, traded client accounts without speaking to them first and that MSSB had not paid “restitution” to any clients serviced by Mr. Siegel. A copy of MSSB's answer may be found here. Jagodzinski, in his Complaint, alleged that following his investigation into Mr. Siegel's activities, Siegel admitted to making 80 unauthorized trades in a client's account, and further admitted to more unauthorized trades in other clients' accounts. William "Bill" Siegel's FINRA brokercheck report shows a client complained that he churned her account, but the complaint was closed with no action. His Brokercheck account also shows MSSB paid $500,000 on a complaint involving auction rate securities.
Jagodzinski alleged that at some point between December 2011 and his firing in April 2012, the branch manager, Turetzky, balked at the suggestion that Kadden's and other broker misconduct such as improper trading of Treasuries should be reported to FINRA. According to the complaint, soon after Jagodzinski pressured Turetzky to report the financial misconduct to FINRA, he was dismissed from the firm.
Jagodzinski's Complaint cites the Dodd-Frank Act, explaining that this Act prohibits retaliation against whistle-blowers and those who report firm or employee misconduct and accuses Morgan Stanley of violating the Dodd-Frank Act by allegedly terminating Jagodzinski's employment as a reaction to his whistleblowing behavior.
This employment dispute, free from the silent vacuum of the closed-door confidential FINRA arbitration process brokerage firms force on their customers and employees alike, exposes a hard fact that some brokers take inappropriate liberties with their clients' accounts and firms are often torn between protecting their clients or protecting their investment in a star broker. It should be interesting to continue watching this case as well as whether FINRA acts to investigate any of the allegations in Jagodzinski's Complaint.
Jagodzinski's allegation of a firm protecting a star employee from reports of wrongdoing and firing an employee for blowing the whistle exposed the potentially harmful results to Morgan Stanley's clients, too. If you were a client of Harvey Kadden, Bill Siegel, or believe your account was churned by your broker, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
News: Ex-MSSB Exec: I was fired for whistleblowing