Morgan Stanley Fined $3.6 Mln in New Jersey’s Broker $5 Mln Customer Theft
Morgan Stanley Smith Barney agreed to pay a $3.6 million penalty to the Securities and Exchange Commission for failing to prevent former New Jersey broker Barry Connell from stealing $5 million from four customers, the regulator said on Friday.
The jailed advisor, who Morgan Stanley fired in 2016 and who last November was ordered to pay the firm a $300,000 balance on a promissory note tied to a bonus, had an assistant wire money in about 110 unauthorized transactions from the accounts of an elderly couple, their daughter and a trust to cover his personal expenses and “fund his lavish lifestyle,” according to the regulator.
He used “Verbal Request Forms” permitting disbursements of up to $100,000 a day per account over 11 months in 2015 and 2016 to execute the fraud, according to the cease-and-desist order that Morgan Stanley accepted without admitting or denying the findings. The actual disbursement requests totaled $7 million, according to the SEC.
“[T]he relevant MSSB policies and procedures for Verbal Request Forms involving third-party disbursements of up to $100,000 per day per account did not prescribe or require any means of authenticating or testing whether a third-party wire or journal had been requested by the client, irrespective of the number or aggregate amount of such third-party disbursements over a period of days or weeks,” the SEC order said.
It also enumerated flaws in the firm’s exception reports that are meant to flag abuses to supervisors, and said Morgan Stanley failed to require calls requesting third-party disbursements to be recorded.
But the firm “promptly” acted to fire Connell after learning of the fraud, entered into settlement agreements with the clients in April 2017 and has significantly enhanced its policies, procedures, systems and controls for detecting theft from client accounts.
“Morgan Stanley is pleased to reach this settlement with the SEC,” a spokeswoman said in an e-mailed statement. “Morgan Stanley has strengthened, and will continue to improve its controls against fraudulent conduct, to ensure the safety of our clients’ assets.”
The spokeswoman did not address whether Connell has paid the balance on his promissory notes that was ordered by a Financial Industry Regulatory Authority arbitrator.
Jeffrey Crystal, Connell’s branch manager in Paramus, NJ, was “permitted to resign” from Morgan Stanley in May, 2017, according to the manager’s BrokerCheck report.