Morgan Stanley is Ordered to Pay Client $100,000.00
THE WALL STREET JOURNAL
June 13, 2003
Morgan Stanley has been ordered to pay a retired Florida engineer $100,000 in one of the first cases that used information released as part of Wall Street's $1.4 billion settlement with regulators over analyst conflicts.
A three-person National Association of Securities Dealers arbitration panel found that Morgan Stanley failed to adequately supervise Joseph Kenith's broker. The panel also ruled that the firm was "liable" in light of its admission to regulators that, among other things, it "engaged in acts and practices that created conflicts of interest for its research analysts with respect to investment banking activities and considerations."
While the $100,000 award is just a fraction of the total damages of $3.3 million that Mr. Kenith was seeking, it is one of the first arbitration awards that cites documents from the global settlement, which was signed in late April and is awaiting court approval. Ten Wall Street firms together paid the $1.4 billion to settle allegations that they issued overly optimistic research in a bid to win more lucrative investment banking business.
The regulatory settlement doesn't take into account the money the firms may eventually have to pay out to customers like Mr. Kenith. Darren C. Blum, Mr. Kenith's attorney, said his client relied on Morgan Stanley research when buying shares. Brokerage contracts generally require investor complaints be heard in arbitration rather than in court.
Morgan Stanley said the panel's award represents a small slice of the total damages the plaintiff was seeking. "Arbitrators occasionally award a small fraction [of the alleged losses] that has the effect of offsetting a portion of the claimants' costs," said a Morgan spokesman. He declined to comment on the fact the panel found the firm liable for issuing allegedly conflicted research.
Mr. Kenith, 74 years old, invested approximately $3 million with Morgan Stanley in 1996. Though he says he told the firm that he had little interest in speculative stocks, his broker purchased for him technology stocks that fared poorly when the bubble burst. In his arbitration claim, Mr. Kenith says he asked his broker to get him into more conservative stocks, but the broker failed to do so. Mr. Blum says this decision cost his client about $2 million in trading gains.
Mr. Kenith filed an arbitration claim against the firm in May 2001, seeking about $3 million in damages.