FINRA Files Charges on Suit­abil­ity

The Bond Buyer - - Front Page - By Sarah Wynn

WASH­ING­TON — Ex-Morgan Stan­ley bro­kers Ami Forte and Charles Lawrence vi­o­lated mul­ti­ple mu­nic­i­pal se­cu­ri­ties rules by ex­ploit­ing a wealthy dis­abled busi­ness­man, ac­cord­ing to the Fi­nan­cial In­dus­try Reg­u­la­tory Au­thor­ity.

In a com­plaint re­leased last week, FINRA said Forte and Lawrence vi­o­lated Mu­nic­i­pal Se­cu­ri­ties Rule­mak­ing Board rules G-8 on books and records, G-17 on fair deal­ing, and G-19 on suit­abil­ity be­tween Sep­tem­ber 2011 and June 2012 when they were reg­is­tered with Morgan Stan­ley. Forte and Lawrence al­legedly ex­ploited the now de­ceased 79-year-old “RS” who was suf­fer­ing from se­vere cog­ni­tive im­pair­ment.

Forte made na­tional head­lines for the al­leged con­duct, with other press re­ports iden­ti­fy­ing “RS” as Roy Speer, a co-founder of the Home Shop­ping Net­work who died in Au­gust 2012.

The self-reg­u­la­tor al­leged that Forte and Lawrence en­gaged in un­suit­able trad­ing in Speer’s ac­counts,

gen­er­at­ing more than $9 mil­lion in com­mis­sions in less than a year.

Rule G-19, the MSRB’s suit­abil­ity rule, states that a bro­ker must have “a rea­son­able ba­sis to be­lieve that a rec­om­mended trans­ac­tion of in­vest­ment strat­egy in­volv­ing a mu­nic­i­pal se­cu­rity or mu­nic­i­pal se­cu­ri­ties is suit­able for the cus­tomer.”

Rule G-17 says bro­kers must not en­gage in de­cep­tive, dis­hon­est or un­fair prac­tice.

Through ex­ces­sive trad­ing, the com­plaint al­leges Forte and Lawrence vi­o­lated both rules.

Speer had been Forte’s cus­tomer since the late 1990s, FINRA found, al­leg­ing that the two also had a ro­man­tic re­la­tion­ship go­ing back to around that time.

After doc­tors di­ag­nosed Speer as suf­fer­ing from cog­ni­tive im­pair­ment, FINRA al­leged Forte and Lawrence in­creased their level of trad­ing.

In the ten month pe­riod, they ex­e­cuted more than 2,800 trades in “RS’s” ac­counts, gen­er­at­ing over $9 mil­lion in com­mis­sions, ac­cord­ing to FINRA’s com­plaint.

Forte and Lawrence met fre­quently with their client and knew he was im­paired, FINRA al­leged, but never re­ported that fact to Morgan Stan­ley. Many of their trades were t suit­able for Speer, ac­cord­ing to FINRA, such as short-term trad­ing of long-term in­vest­ment prod­ucts like bonds with long-term ma­tu­rity dates.

The pair also al­legedly broke Rule G-8, which re­quires bro­kers to ob­tain and main­tain cus­tomer records with non-in­sti­tu­tional ac­counts, by ex­er­cis­ing dis­cre­tion in Speer’s ac­counts with­out writ­ten au­tho­riza­tion.

The case will be heard by a three-per­son panel made up of a hear­ing of­fi­cer and two in­dus­try pan­elists.

The com­plaint re­quests that Forte and Lawrence be made to pay fi­nan­cial penal­ties among other dis­ci­plinary ac­tions, but does not spec­ify an amount.

FINRA was un­able to speak on the com­plaint since it’s con­sid­ered lit­i­ga­tion, said Michelle Ong, FINRA se­nior di­rec­tor of me­dia and ex­ter­nal com­mu­ni­ca­tions.

Forte is no longer em­ployed at Morgan Stan­ley.

Lawrence is now reg­is­tered with the firm of R.F. Laf­ferty & Co., ac­cord­ing to FINRA reg­is­tra­tion in­for­ma­tion. ◽

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