FINRA suspended Jack Theodore Johnson, formerly with Morgan Stanley in Claremont, California, and presently a First Vice President and financial advisor with RBC Capital Markets, LLC in Pasadena, for accepting a customer's order to purchase shares in a pharmaceutical company the customer had inside information about and who purportedly told Johnson that he had inside information that would impact the sale.
According to the investigation, the customer had a phone conversation with Johnson during which he placed an order to purchase shares in a pharmaceutical company. During the conversation, the customer allegedly told Johnson that an insider of the company had told a family member of the customer that the pharmaceutical company would, "within days," receive European approval to commercially sell one of its drugs.
Morgan Stanley's policy at the time required representatives to disallow securities transactions if the broker has a reason to believe the customer is trading while in the possession of inside information. FINRA investigators determined that, based on the phone conversation Johnson had with his client, Johnson had reason to believe such the customer possessed such inside information and, therefore, should not have bought or sold the security.
Firm policy also required brokers inform a supervisor, which investigators claimed Johnson failed to do, while also accepting the customer's trade in contravention of firm policy.
FINRA'S findings also state that although he did not personally trade on the information, Johnson had a conversation with a friend and with a third customer about the customer's claim that "appeared to be material nonpublic information." The document states that when the third customer asked Johnson when would be a good time to sell 250 shares in the pharmaceutical company that the customer owned, Johnson purportedly advised the customer to wait.
As predicted, European drug authorities rendered a positive opinion about the drug two days after the investment, which FINRA says allowed the first client to achieve $7,631 in unrealized gains from trading ahead while also noting that the third customer earned an additional $537 by delaying the sale.
Morgan Stanley subsequently terminated Johnson's registration for processing a client's trade after hearing non-public information and for improperly disclosing said information to another firm client.
If you have invested with Jack Theodore Johnson or with any broker, financial adviser or firm whose inappropriate use of material nonpublic or insider information for illicit financial gain or manipulation has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.