Tramont Guerra & Nez, the securities law firm, files a securities arbitration claim against Morgan Stanley with the Financial Industry Regulatory Authority (FINRA) for sales practice violations.
According to plaintiffs sales practice violations include excessive activity known as “churning” and violation of NASD Notice to Members 04-89, Compliance Bulletin titled “Liquefied Home Equity.”
The securities arbitration claim, filed with FINRA, alleges account “churning” of an account which lost roughly 80% of its value over a four month period. The arbitration claim alleges “conclusive evidence” of “churning” based on the level of turnover of the account assets during the period at issue. The source of the funds for the account assets was from the refinancing of the client’s personal residence.
The securities arbitration claim references the Notice to Members Compliance Bulletin which was issued to all member firms to remind them of the required “heightened scrutiny of accounts that they know, or have reason to know, are funded with liquefied home equity” loans. The Notice to Members continues to warn against a potential decline in the value of the investments and the loss of equity in the investor’s primary residence, which is a risk that is inherently unsuitable.
Brokerage firms are required to provide advice based on the “know your customer” rule to determine the suitability of investment recommendations, as set forth by the Financial Industry Regulatory Authority (FINRA). In the arbitration claim, it was alleged that the recommended investment strategy was unsuitable based on the client’s level of sophistication and inability to understand the risks associated with excessive options trading activity which was a sales practice violation, according to FINRA rules and regulations.
L.D.