SERVING CLIENTS NATIONWIDE

Morgan Stanley to Pay $4.7 Million for Failure to Supervise Broker's Unauthorized Trading, Settlement to Include Dimes-on-the-Dollar Payment to Burned Clients

Mississippi's Securities Division reached a settlement with Morgan Stanley over a multi-year investigation into the firm's trading activity in customer accounts without their knowledge or consent, and resulting in significant client losses, which were five times greater than the relief granted by the settlement: the $4.2 million customer fund portion of the $4.7 million settlement amounts to just 20 cents on the dollar for losses sustained by affected clients.

The Mississippi Securities Division admitted as much in the settlement order, writing that the $4.2m customer fund itself represents a reimbursement of only 20% of the eligible custom portfolio account losses. The fine print states that any owner of the 259 affected accounts from a total of 15 states—including Arizona, California, Minnesota, Oklahoma, Texas, and Washington—may voluntarily elect to participate in the settlement and receive the 20% payout, or may choose not to participate, in which case the nonparticipating client is free to pursue any legal remedy they choose in order to recover a greater portion of their losses.

The order names former Morgan Stanley broker Steven Mark Wyatt, his partner Hilary J. Zimmerman, and manager Fred Eugene Brister as those central to the costly misconduct.

Securities Administrative Proceeding #LS-12-0454

The investigation states upon joining Morgan Stanley, Wyatt completed an application in which he described his investment style, process, and philosophy. Investigators note that in the years since completing that application, Wyatt failed to follow the process described, while Brister and the firm failed to verify or investigate how closely Wyatt followed his stated philosophy and process.

For instance, Wyatt "frequently" mislabeled customer accounts as high risk and traded without authorization or client consent. The investigation states that Wyatt failed to accurately enter new customer information into Morgan Stanley's system, including customer investment objectives, risk tolerance, and similar financial and personal information. The report notes that the firm similarly failed to detect the inaccurate entries.

Investigators also found that Wyatt's trading activity often failed to comply with Morgan Stanley's trading platform, which in turn triggered "numerous" exception reports and "regularly flagged" his accounts for review. Meanwhile, manager Brister allegedly delegated "most of his day-to-day supervision functions" to a firm employee who herself was not a manager.

Wyatt's BrokerCheck report contains 13 disclosures, including 10 settled and pending customer complaints alleging fraud and/or negligent misrepresentation, excessive/unauthorized trading, unsuitable recommendations, breach of fiduciary duty, gross negligence, and manipulation. His history includes not only a FINRA fine and suspension, but a permanent bar issued by Mississippi's Secretary of State.

Zimmerman's BrokerCheck report features seven disclosures, including six customer disputes alleging fraud, misrepresentation, excessive trading, negligence, and unsuitability.

Brister's 11 disclosures include a series of settled and pending complaints alleging he failed to supervise financial adviser Wyatt's activity.

If you have invested with former Morgan Stanley broker Steven Mark Wyatt, or with his partner Hilary Zimmerman or manager Fred Eugene Brister, and have experienced account mislabeling/misrepresentation, or unauthorized and excessive trading activity or churning in your account that has resulted in losses or otherwise proven harmful to your investments or interests, and seek damages that more closely correspond to losses you actually experienced (e.g., as opposed to a 20% class settlement or similar "pennies-on-the-dollar" option), please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

Categories