FINRA Files Charges on Suitability
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. ◽