FINRA Suitability Settlement Involves Five Elderly Retired Morgan Stanley Customers
November 27, 2017
Case In Point
For the purpose of proposing a settlement of rule
violations alleged by the Financial Industry Regulatory Authority
("FINRA"), without admitting or denying the findings, prior to a
regulatory hearing, and without an adjudication of any issue, Timothy Thomas
Gibbons submitted a Letter of Acceptance, Waiver and Consent ("AWC"),
which FINRA accepted. In the Matter of Timothy Thomas Gibbons,
Respondent (AWC 2015047910601, November 17, 2017).
Gibbons entered the securities industry in 1973 and by June 2009 was registered with FINRA member firm Morgan Stanley Smith Barney until he purportedly retired in 2015. The AWC asserts that The AWC asserts that he has no "prior relevant disciplinary history."
Unsuitable Recommendations
The AWC asserts that between January and December 2014, Gibbons recommended that five retired customers (aged 72 to 90) invest 65% to 79% of their account values in a single high-risk energy sector security. Gibbons' investment recommendations resulted in realized and unrealized losses of over $960,000 in the five customers' accounts. FINRA deemed that the cited investment recommendations were unsuitable for each customer based on the customer's age, risk tolerance, investment objectives, and financial circumstances.
Form U5
The AWC asserts that:On April 22, 2015, Morgan Stanley filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") terminating Gibbons association with the firm and his registrations with FINRA on that same date. On November 19, 2015, Morgan Stanley filed a Form U5 Amendment disclosing a customer lawsuit against Gibbons. . .
Sanctions
FINRA deemed Gibbons' conduct to
constitute violations of FINRA Rules 2111(a) and 2010. In accordance with the
terms of the AWC, FINRA imposed upon Gibbons a $20,000 fine; an 18-month
suspension from association with any FINRA member firm in any capacity; and
ordered him to pay partial restitution in the amount of $716,749.78.
In imposing sanctions, the AWC further states the
following:
The fine shall be due and payable either immediately upon reassociation with a member firm, or prior to any application or request for relief from any statutory disqualification resulting from this or any other event or proceeding, whichever is earlier.
Respondent specifically and voluntarily waives any right to claim that he is unable to pay, now or at any time hereafter, the monetary sanctions imposed in this matter.
An order to pay partial restitution to customers EC, AH, CGJ, and GS, listed on Attachment A hereto in the total amount of $716,749.78, plus interest at the rate set forth in Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. 6621(a)(2), from December 2014, until the date of payment. Restitution amounts ordered, pursuant to this disciplinary action, are due and payable immediately upon reassociation with a member firm, or prior to any application or request for relief from any statutory disqualification resulting from this or any other event or proceeding, whichever is earlier. The imposition of a restitution order or any other monetary sanction herein, and the timing of such ordered payments, does not preclude customers from pursuing their own actions to obtain restitution or other remedies. If for any reason Respondent cannot locate any customer identified in Attachment A after reasonable and documented efforts within such period, or such additional period agreed to by the staff, Respondent shall forward any undistributed restitution and interest to the appropriate escheat, unclaimed property, or abandoned property fund for the state in which the customer is last known to have resided.
ATTACHMENT "A" toLetter of Acceptance, Wavier and Consent
CUSTOMER
RESTITUTION AMOUNT
EC
$62,994.87
AT
$290,838.30
COJ
$45,195.57
GS
$317,721.04
TOTAL
$716,749.78
Bill Singer's Comment
As noted on FINRA's online BrokerCheck files as of November 27, 2017, Gibbons had "42 Years of Experience / 4 Firms" and during that time, he incurred two disclosures, one of which is the AWC at issue. The only other disclosure is found under the BrokerCheck heading "Customer Dispute - Pending," which asserts that Morgan Stanley was served on November 12, 2015, with Complaint filed in Louisiana state court that alleged:
Claimant alleges, inter alia, that beginning in May 2014 the FA invested in stocks that were not appropriate for her investment objectives.
During the twelve months from January to December 2014, FINRA alleges that Gibbons engaged in unsuitable recommendations to five elderly clients.Gibbons apparently resigned from Morgan Stanley in April 2015.Morgan Stanley first learns of alleged unsuitable recommendations by Gibbons in November 2015 when it receives a customer Complaint filed in Louisiana state court.FINRA fines and suspends Gibbons in November 2017.
- Didn't there have to be a point in time when each of the five customers' accounts should have hit an "exception run" on Morgan Stanley's Compliance Department's computers?
- Did Morgan Stanley conclude that the five customers had been placed into a single unsuitable security, and if so, how and when was that finding conveyed to the customers and to Gibbons?
- Assuming that this glaring over-concentration in one security set off alarms at Morgan Stanley in 2014, how is it that Gibbons was still employed until April 2015?