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Secretary of State reaches $4.7M settlement with Morgan Stanley

Jackson, MSSecretary of State Delbert Hosemann has reached a settlement agreement with the investment firm Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) which maintains a local branch office in Ridgeland, Mississippi.  Morgan Stanley will return up to $4,243,815.28 to investors.In addition, Morgan Stanley will pay an administrative penalty of $100,000 to the State and will reimburse the Division’s investigative costs of $400,000, for a total settlement amount of $4.7 Million Dollars.

The settlement concluded a comprehensive multi-year investigation conducted by the Securities Division of the Office of the Secretary of State into complaints from customers who had investment accounts with financial representatives at the Ridgeland branch office and suffered inordinate losses.

The investigation into Morgan Stanley found that broker Steven Wyatt allegedly mishandled investment accounts. Investments that were supposed to be labeled “low risk” were treated as “high risk,” and funds of these accounts were often traded without the express consent of the account holder. The state found fault with Wyatt and his manager, Fred Brister.

While Wyatt was employed at Morgan Stanley his actions triggered several reports that showed error on his part.

“Under the Securities Act, we require entities such as Morgan Stanley to supervise their employees,” said Secretary Hosemann. “In this case, we have charged Morgan Stanley with failure to supervise their employees…”

As part of the settlement, a “customer fund” will be prepared by Friday, September 9, 2016, which will return some of the losses to those impacted.  No customer is required to participate in this settlement.  Participation is entirely voluntary and any customer affected may choose not to participate and pursue any legal remedy they deem appropriate.

The customer fund has been set up for the benefit of 259 accounts held by 213 investors from 15 states.  In Mississippi, 194 accounts were affected.  Other states include Alabama (4), Arkansas (5), Arizona (2), California (2), Florida (5), Kentucky (2), Louisiana (25), Minnesota (1), North Carolina (4), Oklahoma (1), Pennsylvania (2), Tennessee (7), Texas (4) and Washington (1).

The $4.2 million earmarked for reimbursement to investors would be divided up amongst those who choose to participate.

For many, however, the amount is not enough to tap the immense losses endured by the investors.

“This settlement doesn’t make them whole,” said Attorney Joe Peiffer, of Peiffer, Rosca, and Wolf Law Firm out of New Orleans. “It just sets a floor on what they could get back.”

Peiffer said that the $4.2 million would only return about 15 or 20 cents of every dollar lost.

“How am I supposed to tell them they’re only getting back 15 cents of every dollar?” said Peiffer. “This isn’t just money that’s lost…. people that can’t go to school they saved for, people that can’t retire as they thought they would.”

The attorney added that for some of his clients it has put lives at risk, such as a woman that staked her daughter’s health care in the investments.

“One of my clients, she doesn’t want to go before the camera, for personal reasons,” said Peiffer. “But she lost about $300,000 that was earmarked to take care of her daughter with cerebral palsy after her own death. You can’t make that money back up. It’s not possible.”

The attorney said that the 77 clients he represents in this case will not be partaking of the customer fund, but have planned to begin further litigation in November.

A copy of the consent order between the Secretary of State’s Office and Morgan Stanley can be found here.

 

 

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