An arbitrator under the aegis of FINRA Dispute Resolution Services this week awarded Morgan Stanley close to $8.7 million to be paid by a former advisor at the firm who was found guilty of two counts of fraud related to a scheme to rip off professional basketball players by overcharging them for insurance investments.
The ex-advisor, Darryl Cohen, was convicted in March of wire fraud and investment advisor fraud. A third charge of conspiracy was dismissed by the judge after the jury failed to reach a unanimous verdict.
Morgan Stanley sued Cohen in 2021 in a dispute over promissory notes, loans that brokers pay back to firms over time. Morgan Stanley sought to claw back recruiting bonus money from Cohen.
The firm alleged breach of contract and other claims in its complaint, according to the FINRA arbitration award, which was issued Wednesday.
A spokesperson for Morgan Stanley declined to comment on the arbitrator’s decision. An attorney for Cohen, Benjamin White, also declined to comment.
The arbitrator ruled Cohen was liable for $8.13 million in damages to Morgan Stanley and also to pay $561,000 in legal fees.
InvestmentNews reported in March that Cohen, 52, of Chatsworth, Calif., faces a maximum sentence of 20 years in prison for the wire fraud conviction and a maximum of five years for the investment advisor fraud.
Cohen had been fighting charges that he defrauded NBA players out of millions of dollars when he sold them viatical settlements, a complex investment product that allows individuals with a limited life expectancy to sell their life insurance to another person or group.
Cohen, along with three other people, was charged in March 2023 with six counts for schemes to defraud professional basketball players, according to a statement from the U.S. Attorney’s Office, the southern district of New York.
As part of his scheme Cohen allegedly transferred $500,000 from the accounts of two professional basketball players as purported donations to a non-profit organization, according to federal charges. He then used approximately $238,000 of those funds to build athletic training facilities in the backyard of his home.
Cohen was registered with Morgan Staanley in the Los Angeles suburbs from 2016 to 2021, according to his BrokerCheck profile, when the firm “discharged,” or fired him. The same year FINRA barred him from the securities industry.
The NBA players who were the targets of Cohen’s alleged scheme included Jrue Holiday, Chandler Parsons and Courtney Lee.
From 2017 through 2020 Cohen managed a scheme to defraud three different professional basketball player clients of over $5 million by taking advantage of his advisory and fiduciary relationships with those clients, according to the federal charges.
Cohen conspired with Brian Gilder, an independent financial planner whom Cohen “encouraged his clients to work with and who assisted in tax preparation,” according to the federal allegations.
Cohen and Gilder allegedly fraudulently induced three athletes to purchase viatical life insurance policies at massive markups of 222%, 310%, and 244%, respectively, without disclosing Gilder controlled the transaction, according to the indictment.
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