Finra arbitrators awarded $519,089 to a couple who claimed a Morgan Stanley broker recommended inappropriate complex investments.
The three-person, all-public
Financial Industry Regulatory Authority Inc. panel found in favor of Stephen R. Balok and his wife, Brenda, who alleged that they suffered losses in eight accounts between 2012 and 2015.
They were placed in a Morgan Stanley investment advisory program, where they purchased junk bonds, ETFs based on derivatives and futures contracts and options contracts, according to the
May 17 arbitration award. They alleged suitability violations and negligent supervision, among other charges.
After being laid off from his job as head of facilities maintenance at Public Service Co. of New Mexico, Mr. Balok turned to a Morgan Stanley broker for help in managing his finances, according to his attorney, Clinton Marrs, owner of Marrs Griebel Law, in Albuquerque, N.M. It was the first time Mr. Balok, who was in his mid-50s, had ever used a financial adviser.
The broker, Tim J. Prouty, enrolled the Baloks in Morgan Stanley's investment advisory program. The panel denied Morgan Stanley's request for expungement of the claim from
Mr. Prouty's BrokerCheck record, which is the only disclosure on his record.
Although Morgan Stanley touted its advisory program when the Baloks entered it, the firm asserted that the decisions to purchase the complex products were made by the couple.
"Morgan Stanley wants to have its cake and eat it, too," Mr. Marrs said. "When the wheels come off, you want to repudiate the investment-advisory nature of the account. Now, all of the sudden, it is a de facto brokerage account."
The Baloks account showed a gain for the years in question. But Mr. Marrs argued that it would have accumulated $519,089 more if it had been invested in index stock and bond funds.
Morgan Stanley denied any wrongdoing.
"The firm disagrees with the panel's decision and does not believe that the evidence supported the panel's award in this case," Morgan Stanley spokeswoman Susan Siering said in a statement.
As part of its defense, the firm pointed to a long string of email messages between Mr. Balok and Mr. Prouty. It asserted that Mr. Balok was calling the shots in the account.
But Mr. Marrs said Mr. Balok, who had no investment experience, simply repeated terms Mr. Prouty used without understanding them or the underlying advice. He went back to when the advisory account was opened in 2005 to make his point.
"I had to show it was the customer echoing strategies brought to him by the adviser," Mr. Marrs said. He had to "contextualize the email traffic. You have to slow it down, break it down and tell the story."
