Victims filed arbitration claims against Morgan Stanley, alleging that it failed to reasonably supervise its employee.
financial advisor has been sentenced to more than seven years in prison after admitting he ran a $7 million Ponzi scheme at the firm for more than a decade.
The advisor, Shawn Edward Good, was a vice president in Morgan Stanley's Wilmington, North Carolina, office from 2012 until early last year, when he was abruptly fired after the scam came to light. Last September, he pleaded guilty in federal court to one count of money laundering and one count of wire fraud.
But it also meant that while they were unwittingly funding Good's scam, the victims also were on the hook for interest to Morgan Stanley for as much as $2,000 per month. "I think any other brokerage firm would have detected this activity," said attorney Marc Fitapelli of New York, who represents Andrews and her mother. Andrews' mother also lost everything she had, roughly $1 million., is confidential. While the firm settled with at least one client under undisclosed terms, Fitapelli said Morgan Stanley has pushed back against claims that it was somehow responsible for Good's actions.
"He just seemed really invested in our family," she said. "He just seemed very trustworthy and friendly."Morgan Stanley does the homework about who they hire," she said. "And he isn't just some guy on a street corner with a sign."Andrews said that she stressed to Good from the outset that the money was everything that she had. As a single mother, her earning power was limited.
Good would arrange for the purchases through her Liquidity Access Line of Credit. What she said she had not understood, as a novice investor, was that the funds for the bonds were going from her line of credit into Good's personal account.It wasn't until early last year that she had any idea something was wrong. That's when investigators from the IRS and the North Carolina State Bureau of Investigators contacted her about the money transfers from her brokerage account to Good.
"OK, and I'm going to trust you because you work at Morgan Stanley. And you should know these things," Andrews replied. "They should have detected it and prevented it at the outset," said Straney, the founder and managing partner at Arbitration Insight in Santa Fe, New Mexico. "They should have been more proactive. Because the red flags, the alerts were there."
Last year, the firm paid a $125 million fine to the Securities and Exchange Commission after admitting to the "widespread and longstanding failure of Morgan Stanley employees throughout the firm" to follow rules prohibiting "off-channel communications" on personal devices and messaging apps as far back as 2018, following an investigation that began in 2021., all admitting they violated federal securities laws.
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