December 8, 2015-Boston, MA
A FINRA arbitration panel ordered Morgan Stanley and broker Justin Amaral to pay a 92 year old widow over $1 million for churning her account. The victim alleged various causes of action including, undue influence, failure to supervise, breach of fiduciary duty, negligence and breach of covenant of good faith and fair dealing. Lenehan v Morgan Stanley, FINRA Case #14-3705.
The award included punitive damages of more than $500,000 as well as attorney fees in excess of $226,000.
According to the Investment News, Amaral churned the account, buying and selling closed end funds to generate fees. Investment News reports that Ms. Lenehan had accumulated thousands of shares of General Electric stock working as a secretary at a manufacturing firm beginning during World War II. Amaral put the shares in a ‘wrap account’ so that he could unnecessarily collect fees. In addition, the victim alleged that Amaral purchased and sold annuities for Ms. Lenehan by forging her signature.
Amaral was previously barred from the securities industry for failing to cooperate with a FINRA investigation.
Churning/ Excessive Trading
Excessive trading occurs whcn a registered representative exercises control over a customer’s account and the level of activity in that account is inconsistent with the customer’s investment objectives, financial situation, and needs. Excessive trading violates FINRA’s suitability standards under NASD Conduct Rule 2310 and FINRA Rule 2 11 1. Excessive trades recommended with requisite scienter such as a reckless disregard for a customer’s interests – is considered churning.
Excessive trading generally is measured by the turnover rate, which is the number of times the value of the account is turned over within a given period of time, and the cost-to-equity ratio, which represents the percentage of return on the customer’s average net equity needed to pay commissions and other account expenses over a given period of time.
Rex Securities Law , with offices in Boca Raton, FL, and Austin, TX, provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.
Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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