A well known securities law firm, Sonn and Erez, announced they’ve filed a $6 million arbitration law suit against Morgan Stanley (NYSE:MS) concerning the sale of proprietary structured products.
The arbitration suit is filed before the Financial Regulatory Authority (FINRA), alleging that Morgan Stanley brokers Jose Canasi and Carlos Molina were involved with misrepresentation in reference to the sales of those products. The Financial Industry Regulatory Authority is the largest independent regulator for security firms that do business in the U.S.
The alleged misrepresentation revolves around whether or not the structured products being sold were “principal protected,” which means they could not lose any of their initial investment with them if they were.
According to a press release from Sonn and Erez, some of the structured products sold by the Morgan Stanley brokers not only didn’t guarantee a return of principal, but were also locked up for 15 years, something they said they weren’t told when investing in the products.
” … some of the structured products did not provide principal protection and Canasi and Molina sold and realized losses on some structured products prior to maturity by quickly selling them shortly after purchasing them; alleged that Morgan Stanley liquidated the investor’s structured products in June, 2009 due to the leveraged strategy it recommended, precluding the investor from ever recovering his principal in principal protected notes; alleged that Canasi and Molina failed to disclose the 15 year lock up of capital associated with some of the structured products, and failed to disclose that under certain circumstances, which actually materialized, the investor would not receive interest on his investment in the structured products.
Sonn and Erez also claim that their investment objectives were ignored as well as their stated tolerance to risk, and consequently the vast majority of their capital was invested in risky proprietary structured products where they lost over $6 million, the reason that’s what they’re attempting to recoup in the arbitration suit.
To understand what a structured product is, it basically means an investor’s portfolio isn’t diversified, and instead is focused on single securities, commodities, currencies, among other investment vehicles. This means they were exposed to a lot more risk than they allege they communicated they wanted to be.
Interestingly, this was probably a must case for Sonn & Erez, as they were made to look bad by the huge losses, and since they represent investors in these very circumstances, were probably obligated to defend themselves for the sake of the money, but also the sake of reputation. And let’s face it, this is also a marketing tool they can use to draw attention to their services. So far I haven’t found any response to this by Morgan Stanley.
