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Morgan Stanley to Pay $452,034 for Broker’s Traders

11/18/2004

Reuters

NEW YORK, Nov 18 (Reuters) – An NASD arbitration panel ordered Morgan Stanley (MWD.N: Quote, Profile, Research) to pay a brokerage client $452,034 for making unauthorized margin trades that nearly wiped out the client’s account, lawyers for the plaintiff said on Thursday.

Joacy Silva, a 52-year-old resident of Van Nuys, California, won the award on Monday after trades made by broker Rick Schoen caused the value of her account to fall to about $30,000 in Dec. 2000 from a peak near $500,000 nine months earlier, the lawyers said. The trades were made from Feb. 1999 to Nov. 2000 while Silva was in Brazil, they said.

Ryan Bakhtiari, a lawyer who represented Silva, said Schoen, who works in Morgan Stanley’s Beverly Hills office, at one point had bought on Silva’s behalf more than $1 million of securities, mainly in technology and telecommunications companies. He said these margin purchases magnified his client’s losses.

“Ms. Silva was looking to grow her money consistent with not taking significant risk to her principal,” said Bakhtiari, an associate at the Beverly Hills law firm Aidikoff & Uhl, in an interview. “The market didn’t cause the loss, it was the speculation in technology stocks on margin that caused the loss.”

The tech-heavy Nasdaq fell 52 percent by the end of 2000 from its March 2000 peak.

Andrea Slattery, a Morgan Stanley spokeswoman, confirmed the NASD award and said the company is “disappointed with the decision.”

Schoen has worked for Morgan Stanley since 1990, according to the NASD, and remains employed in its Beverly Hills office.

Bakhtiari said a Morgan Stanley supervisor froze Silva’s account in Nov. 2000, and that his client discovered the unauthorized trading the following month. The penalty includes $322,882 representing Silva’s losses on a dollar-for-dollar basis, plus $129,152 in lawyers’ fees,Bakhtiari said.

The NASD was formerly known as the National Association of Securities Dealers. In July it fined Morgan Stanley $2.2 million for late disclosure of information about its brokers, and $250,000 for failing to comply with discovery obligations in seven arbitration cases.


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