Published on:

FINRA Arbitration Panel Awards Customer $4,500,000 against Morgan Stanley for Negligent Handling of Trust Account

On August 15, 2014, a three (3) member Financial Industry Regulatory Authority (“FINRA”) arbitration panel found Morgan Stanley & Co., Inc. (“Morgan Stanley”) liable for negligence and negligent supervision. Banco Nacional de Mexico SA, known as Banamex Financial Group (a subsidiary of Citigroup, Inc.), as Trustee of the Trust Agreement Numbered 15437-5 (“Banamex”), originally filed a Statement of Claim against Morgan Stanley on March 16, 2012 alleging breach of fiduciary duty, negligence, negligent supervision, conversion, fraud, and tortious interference with a contract. The case related to whether Banamex agreed to pledge the assets held in the Canassi Family Trust sub-accounts (a high net worth client) against a third party debtor (known as a cross-pledge). The trust was established in 2007 by a group of siblings and their mother, who used proceeds from the sale of inherited property. The trust was managed by Morgan Stanley’s banking unit.

According to Banamex’s attorney, Morgan Stanley caused the trust accounts to guarantee payment of third-party loans of a family member without Banamex’s authorization. At the close of the hearing, Banamex requested $5,228,314.62 in compensatory damages. The FINRA arbitration panel ultimately awarded Banamex $4.5 million. Morgan Stanley’s spokesperson, Christine Jockle, issued a statement asserting, “We believe that the evidence showed that the patriarch of the family pledged the trust account as collateral for loans that benefited the family, and those accounts were treated that way for the two year period at issue.”
Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered damages from sales practice abuses. Additionally, Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.