Morgan Stanley penalized for advisor fraud, ducks huge fine

Wealth advisors found guilty in FINRA arbitration after employee's affair with client.

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Morgan Stanley faces a $35 million charge after wealth advisors were found to have engaged in fraud and breached fiduciary duty to an elderly client, according to an arbitration panel appointed by the Financial Industry Regulatory Authority.

Lawyers for Lynnda Speer, widow of Home Shopping Network co-founder Roy Speer, said Florida Morgan Stanley wealth advisors Terry McCoy and Ami Forte were responsible for unauthorized trades on Roy Speer's account. A FINRA panel on Monday determined that McCoy and Forte were guilty of elder exploitation, breach of fiduciary duty, constructive fraud, negligence and negligent supervision.

Lawyers for Speer's widow alleged that Forte manipulated the account during a yearslong affair she had with Roy Speer, who died in 2012.

The FINRA panel found for damages of more than $32.8 million and costs of more than $1.5 million, in addition to legal fees in the case, which have yet to be determined.

"I am very pleased the arbitrators realized Ms. Forte and her colleagues breached their fiduciary duties to Roy and his foundation and exploited him during a time of his continuing mental and physical decline," Lynnda Speer, wife to Roy Speer for more than 50 years, said in a statement.

Despite taking a multimillion-dollar fine, Morgan Stanley potentially faced far greater losses.

In a regulatory filing last year, Morgan Stanley disclosed that it faced more than $170 million in fines related to the Speer case. The lawsuit filed by the multimillionaire's widow sought $100 million in compensatory damages, plus $300 million in punitive damages.

"Morgan Stanley is disappointed by the result and does not believe the award is justified," a Morgan Stanley spokeswoman stated. "Although disappointing, it is a small fraction of the more than $476 million sought by the claimants. Even so, the award is inconsistent with substantial evidence showing that the accounts were profitable for the client and managed in accordance with his wishes."

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Guy Burns, a managing partner at Johnson Pope Bokor Ruppel & Burns, who represented Speer's widow, said that further regulatory action is possible.

Forte did not respond to an e-mail sent to her company account and a Morgan Stanley spokeswoman declined to make her available for comment. She oversaw between $155 million and $185 million of Speer's finances. A Morgan Stanley webpage for Forte and other staffers, which was taken down during the FINRA arbitration, called her "one of the few female members of the Morgan Stanley's Chairman's Club, qualifying consistently since 2001."

The bank's Chairman's Club is for top-producing wealth advisors. Forte was also named in Barron's as a top financial advisor for several years, according to an archived version of her Morgan Stanley web page.