NAPLES, Fla., Dec. 29, 2016 /PRNewswire/ -- Vernon Litigation Group has filed an expedited FINRA arbitration claim against Morgan Stanley for failed supervision over the financial advisor's handling of a multi-million dollar account. According to the Vernon Litigation Group's investigation and resulting claim, the dispute involves excessive compensation, concentration and speculation issues, as well as trading concerns.
The client involved in this case is a retired inventor suffering from significant health issues. The bulk of the investor's assets came from the many engineering models and inventions he developed throughout his career. According to the claim, although the markets and the economy benefited significantly in recovering from the financial crisis of the last decade, the Morgan Stanley account benefitted only Morgan Stanley and the Morgan Stanley advisor involved, and not the investor. The Claim alleges that the account suffered from over-trading an excessive number of individual stocks, including over-concentrations in high risk sectors, which resulted in unconscionable transaction costs well in excess of $1 million. These costs effectively destroyed the account's performance and created unnecessary tax consequences for the client.
The Claim indicates that at one point, the Morgan Stanley financial advisor implemented an investment strategy that consisted of trading in energy-related products (up to almost 40% of the overall account), including the purchase of many Limited Partnerships, Limited Liability Companies, and Master Limited Partnerships ("MLPs"). Moreover, the Claim alleges that the Morgan Stanley broker effectively engaged in an incompetent and deceptive strategy known as "selling the winners and holding the losers." More specifically, the Claim alleges that account activity from 2009 through April of 2016 revealed that more than half of all the products in the account were purchased and subsequently sold over a period of less than a month (and a significant portion of those products were actually purchased and sold within days or even the same day). This short-term trading occurred to create realized gains (and transaction fees), while the bulk of the products that were held in the account for more than 90 days were products that lost considerable value. According to the FINRA arbitration claim, this created a pattern of taxable gains that avoided realized losses and allowed the broker to tout "homeruns" to the client and the "profits" he was generating for the account while downplaying the unrealized declines in the account.
According to the claim filed by Vernon Litigation Group, the Morgan Stanley broker also over-concentrated the portfolio in the energy sector. At one point, the allocation in energy-related products reached nearly 40% of the overall portfolio. Of the products improperly concentrated in the energy sector of the portfolio, most were limited partnerships, royalty trusts, and master limited partnerships ("MLPs"). This is an important fact because most of these MLPs are set up in such a way that if they ever fail or report significant losses, the losses that are written off by the MLP are passed on to the investor as taxable events. These MLPs also expose investors to other significant risks, including leverage and liquidity risks, interest rate risks, and market risks.
The Claim alleges that in the Morgan Stanley account at issue in this case, the following LPs and LLCs caused significant combined damages in the Client's portfolio:
- ICAHN Enterprises, LP
- Sandridge Mississippian Trust II
- INERGY, LP
- Natural Resources Partners, LP
- Pacific Coast Oil Trust
- Vanguard Natural resources, LLC
- Cobalt International Energy
- Vanguard Natural Resources, LLC
- Seadrill Partners LLC
The claim filed by Vernon Litigation Group asserts Morgan Stanley is liable to the client for damages resulting from negligence, gross negligence, breach of fiduciary duty, lack of supervision, conflicts of interest, omission and misrepresentation of material facts, excessive trading, unauthorized trading, significant tax liability, fraudulent inducement, and fraud. The Claim seeks not only compensatory damages, but also significant punitive damages and a disciplinary referral to FINRA regulators.
The lawyers at Vernon Litigation Group continue to represent investors across the country who have suffered considerable losses and tax problems from energy related investments such as ICAHN Enterprises, LP, Sandridge Mississippian Trust II, INERGY, LP, Natural Resources Partners, LP, Pacific Coast Oil Trust, Vanguard Natural resources, LLC, Transocean LTD, Cobalt International Energy, and Seadrill Partners LLC. If you are concerned about your investments with a brokerage firm such as Morgan Stanley, or other firms who sell these types of products, please contact Vernon Litigation Group toll-free by phone at 1-877-649-5394 or by e-mail at email@example.com for a free and confidential consultation.
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SOURCE Vernon Litigation Group