FINRA Bars Morgan Stanley Stockbrokers For Churning
Amy Kathryn Forte and Charles Joseph Lawrence both of Palm Harbor Florida and stockbrokers formerly employed by Morgan Stanley have been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity founded on findings that (1) a customer’s account had been traded excessively and churned by Lawrence while at Morgan Stanley and (2) Lawrence’s actions were aided and abetted by Forte. Department of Enforcement v. Ami Kathryn Forte and Charles Joseph Lawrence Disciplinary Proceeding No. 2016049321302 (Oct. 21, 2019).
According to the Decision, Forte and Lawrence serviced the accounts of an elderly and severely impaired customer, RS. Trades executed by Forte and Lawrence were both quantitatively and qualitatively unsuitable for RS, and Forte and Lawrence’s activities caused the customer to pay in excess of $9,000,000.00 in commissions. The Decision stated that trades were placed in RS’s accounts without the customer’s permission. The customer was not in a position to discuss the activities because of being hospitalized.
The Decision revealed that RS was in a romantic relationship with Forte when they initially met. Forte not only exploited her personal relationship with RS but also exploited her business relationship with the customer until he died. In fact, Forte and Lawrence were aware of RS having a severe cognitive impairment but failed to address this issue with Morgan Stanley. What transpired instead was an increased level of trading in RS’s accounts months after RS had been diagnosed.
The Decision stated that in approximately ten months, during which time RS was cognitively impaired, more than two thousand eight hundred trades had been placed by Forte and Lawrence in the customer’s account, generating $9,000,000.00 in commissions. FINRA found that Lawrence’s churning and excessive trading violative of Securities Exchange Act of 1934 Section 10(b), Securities and Exchange Commission (SEC) Rule 10b-5, FINRA Rules 2010 and 2020, and Municipal Securities Rulemaking Board (MSRB) Rules G-17 and G-19. Forte was found liable by FINRA for aiding and abetting Lawrence’s violations in this respect.
FINRA also stated that transactions placed by Lawrence failed to be suitable. Long-term Investments had been traded on a short-term basis. FINRA noted that income-producing bonds containing long-term maturities had been frequently traded. FINRA determined that Lawrence’s unsuitable trading was violative of FINRA Rules 2010, National Association of Securities Dealers (NASD) Rule 2310 and MSRB Rule G-17; and that Lawrence’s unauthorized trading was violative of FINRA Rules 2010, MSRB Rules G-8, G-17 and G-19(d) as well as NASD Rule 2510(b).
FINRA Public Disclosure additionally confirms that Forte is the subject of a customer initiated investment related arbitration claim in which the customer was awarded $32,840,000.00 in damages based upon Forte and Morgan Stanley being found liable on the customer’s claims including violation of Chapter 415 of Florida Statutes; unjust enrichment; negligent supervision; negligence; breach of fiduciary duty; churning; and unauthorized trading in the customer’s account. FINRA Arbitration No. 13-00549 (Mar. 21, 2016).
Forte and Lawrence were both discharged by Morgan Stanley on March 23, 2016 founded on allegations of the stockbrokers, inter alia, having effected trades on a discretionary basis.