Securities Arbitration Lawyers BlogMorgan Stanley Investigated for Securities Recommendations
As discussed in last week’s Silver Law Group blog, Cobalt International and Seadrill Limited, two oil and gas publicly traded companies, are now defendants in class action lawsuits. The separate, but similar, suits allege that investors lost significant sums of money by relying on misleading information and SEC filings from each company.
Investigation Reveals Possibility of Inappropriate Investment Advice
It is believed that unsuitable and inappropriate advice from stock brokers and financial representatives who recommended the purchase of these companies contributed to losses suffered by investors. The Silver Law Group is currently investigating the role that the Morgan Stanley’s registered financial representatives may have played in investors’ losses.
FINRA Regulations Outline Financial Representatives Obligations
FINRA, the United State’s Financial Industry Regulatory Authority, provides mandatory rules and regulations that govern brokerage firms, like Morgan Stanley, and their financial advisors. Silver Law Group believes that Morgan Stanley representatives may have violated these rules and regulations in connection with its institution-wide recommendations for Cobalt and Seadrill.
FINRA regulated representatives are required by law to know their customers and to only make recommendations that are “suitable” for a given customer. FINRA Rule 2090 requires that advisors conduct due diligence to learn about all of their customers, regardless of the customer’s account size or other information. Knowing a customer means knowing information necessary to effectively provide service and establish authority to act on the customer’s behalf.
Information about the customer should be applied by the representative to issue investment recommendations that comply with FINRA Rule 2111, governing suitability of investment advice. That rule requires that the representative have a “reasonable basis to believe that a recommended transaction or investment strategy is suitable for the customer, based on…the customer’s investment profile.”
The customer’s investment profile is comprised of information, including the customer’s age, investment objectives, investment experience, and risk tolerance. In short, the representative must consider both the investment itself and whether that investment is suited for the particular investor considering their portfolio as a whole.
Representatives have an obligation to make evaluations on a customer-by-customer basis. An investment that is suitable for one customer may be unsuitable for another. Similarly, an investment in a particular security or sector that is suitable in a small quantity may become unsuitable when it accounts for too large of a percentage of an investor’s portfolio, resulting in what is called over-concentration.
Morgan Stanley’s Potentially Unsuitable Investment Recommendations
Morgan Stanley, itself a large investor in Seadrill, issued widespread recommendations for the purchase of Seadrill and Cobalt. Silver Law Group’s investigations have revealed that these recommendations may not have been suitable for many of the investors they were recommended to or may not have been suitable in the amount that they were recommended.
Morgan Stanley Investors Encouraged to Learn More
If you were or are a Morgan Stanley customer and have suffered investment losses tied to Seadrill or Cobalt, contact the Silver Law Group today to discuss the legal remedies that may be available to you.