FINRA Charges Morgan Stanley Stockbroker With Misconduct

Stephen Sloane of New York New York a stockbroker employed by Morgan Stanley has been identified in a FINRA Department of Enforcement Complaint where the regulator is seeking sanctions including a fine and suspension against Sloane for providing unsuitable investment recommendations to customers and for charging them excessive fees for trades that he executed at Morgan Stanley and Westpark Capital. Department of Enforcement v. Stephen Sloane Disciplinary Proceeding No. 2016049414401 (July 20, 2020).

According to the Complaint, between January of 2014 and January of 2018, an unsuitable investment strategy had been recommended to at least fourteen customers by Sloane. Those customers had allegedly been told by Sloane to make short-term trades of United States Treasuries which had contained maturities ranging from ten-to-thirty years. This active trading strategy was allegedly not investigated by Sloane before he made recommendations. Department of Enforcement indicated that the stockbroker failed to perform due diligence on costs and the returns that customers might be able to generate by following his strategy. Sloane allegedly lacked an adequate foundation to conclude that the strategy he recommended was appropriate.

The Complaint stated that fourteen customers followed Sloane’s advice by purchasing and selling United States Treasuries approximately every quarter. Department of Enforcement alleged that 546 Treasury transactions were effected in those customers’ accounts. 40 percent of the customers allegedly frequently traded Treasuries which contained long maturities. Within nine months, three out of four customers had sold the long-term Treasuries.

Department of Enforcement also contended that customers experienced losses from excessive Treasury trades when Sloane profited. The Complaint indicated that $329,8211.00 in losses had been realized by customers on trades made between January of 2014 and January of 2018. This allegedly did not count the markups and markdowns as well as fees relating to his investment strategy. The Complaint alleges that the markdowns and markdowns totaled $510.025.00 for the execution of 546 trades of Treasuries. Approximately $220,000.00 in compensation was allegedly taken in by Sloane through implementing the strategy.

The active trading strategy was allegedly implemented by Sloane for his benefit only and without consideration of how costs might detrimentally affect the interests of his customers. The Complaint also alleges that Morgan Stanley Wealth Management warned him to lower his costs relating to Treasury trades, but he did not listen. FINRA Public Disclosures confirms that Sloane was actually discharged by Morgan Stanley Wealth management on February 29, 2016 founded on accusations of the inappropriate costs that he charged in reference to his trading of those Treasuries.

The Complaint also indicated that during the period in which Sloane became employed by Westpark Capital, he brought his unsuitable trading strategy with him. The stockbroker allegedly failed to have an adequate foundation to conclude that his active short-term trading was suitable for customers. Department of Enforcement alleges that Sloane’s conduct constitutes violations of FINRA Rules 2010 and 2111(a).

FINRA Department of Enforcement also alleged that five customers of Sloane were told to use the proceeds of Treasuries to buy more of the same a day later. Those transactions caused markups ranging between 6.11 percent and 7.92 percent. Sloane’s markups were allegedly unfair and excessive as it caused customers to pay prices that did not correlate to the typical market rates at the time. Department of Enforcement alleges that Sloane’s conduct in this respect was violative of FINRA Rules 2010 and 2121.

Sloane has been identified in four customer initiated investment related disputes containing allegations of his misconduct while employed by Citigroup Global Markets, Salomon Smith Barney and Morgan Stanley. FINRA Public Disclosure reveals that a customer initiated investment related arbitration claim involving Sloane’s conduct was settled to resolve allegations that the customer was sold a bad stock which resulted in the Morgan Stanley customer’s losses. Another customer initiated investment related arbitration claim involving Sloane’s conduct was settled for $25,000.00 in damages based upon allegations that equities and mutual fund trades effected in the customer’s account were not suitable for the Salomon Smith Barney customer.

Sloane has also been identified in a customer initiated investment related written complaint which was resolved for 55,000.00 in damages founded on accusations that federal securities laws including Securities Act of 1933 were violated in regard to the mutual fund trades Sloane made at Salomon Smith Barney. According to the claim, the customer was defrauded. The claim also alleges that Sloane’s negligence and bad investment recommendations caused the customer’s losses. A contract was allegedly breached because of the mutual fund transactions executed by Sloane.

Another customer initiated investment related arbitration claim pertaining to Sloane’s conduct was settled for $78,500.00 in damages supported by allegations that investment recommendations failed to be suitable as it pertained to exchange traded funds facilitated in the customer’s account during the period in which Sloane was employed by Citigroup Global Markets.

Sloane has been associated with Westpark Capital since March 10, 2016.