by Karmen Alexander
Morgan Stanley was ordered to pay $843,000 in compensatory damages to a senior investor in Tampa, Florida, in a case that highlights potential risks for firms when clients fall victim to scams.
Marjorie Kessler, a septuagenarian, alleged the firm was negligent in failing to prevent financial exploitation after she lost nearly $1.75 million to fraudsters posing as government officials, according to a Financial Industry Regulatory Authority arbitration award on Monday and a copy of her complaint.
Scammers convinced Kessler that her identity had been stolen and she needed to convert her assets to cash, gold and cryptocurrency that would be deposited into a U.S. Treasury account for safe keeping, according to the complaint. In July and August 2023, she withdrew the funds from her Morgan Stanley account in two large transfers.
Kessler alleged that Morgan Stanley should have investigated her “uncharacteristic” requests to withdraw the money and also that it failed to take “reasonable” steps to ensure she had established a trusted contact for her account as required by Finra rules.
The panel, including three public arbitrators, appeared convinced that Morgan Stanley did not take sufficient steps to investigate the second large withdrawal or put in place a trusted contact, according to Kessler’s lawyer, Lloyd R. Schwed of Schwed Kahle & Kress in Palm Beach Gardens, Florida. They deducted the first transfer amount from Kessler’s $1.75 million damage request because they concluded Morgan Stanley did not have enough evidence to investigate, Schwed said.
“I am very grateful to the arbitrators for understanding how vulnerable senior investors are to tech support and government impersonation scams,” Schwed said.
Morgan Stanley in a counterclaim said it had acted prudently given the circumstances. Kessler, who had shown no indications of cognitive impairment, made misstatements to her advisor about the purpose of the withdrawals, including saying that she was helping her daughter purchase a home.
The funds were also transferred to a bank account in Kessler’s name at Wells Fargo and from there diverted to the scammers.
A spokesperson for Morgan Stanley expressed sympathy for Kessler and noted that it “is important to keep in mind that this fraud did not occur at Morgan Stanley.”
“Further, the Firm should not be held responsible for her losses as Ms. Kessler made misstatements to her Financial Advisor about the purpose of the transfers, and authorized them to be sent to a third-party bank account held in her name,” the spokesperson said in a statement.
Elder fraud is a major concern for advisors and their clients as well as firms and regulators, including Finra which has been expanding options for firms to freeze funds and take other measures in cases of suspected abuse.
The Federal Bureau of Investigation said that in 2023 it received complaints representing $3.4 billion in losses reported by those over age 60 who claimed they had fallen victim to scams. Those over 60 lost more than all other age groups combined, according to its most recent elder fraud report.
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Morgan Stanley Ordered to Pay $843,000 in Elder Fraud Case
