FINRA Charges Ex-Morgan Stanley Broker with Hiding Client Names to Avert Trading Restrictions
A broker who allegedly earned $4.6 million in 14 months as one of Morgan Stanley’s top New York City producers was charged last week with evading the firm’s restrictions on trading Venezuelan bonds by creating client accounts using fictitious names at outside banks.
The Financial Industry Regulatory Authority on September 1 filed an enforcement complaint charging John Batista Bocchino and his top sales assistant, Rafael Barela Jacinto, with trading $190 million worth of Venezuelan bonds for customers by opening nominee accounts for them in the names of five “well-known financial institutions” so the clients and brokers could avoid scrutiny from Morgan Stanley’s anti-money laundering and compliance departments.
The complaint alleges that the brokers suffered a “sharp decline in revenue” after Morgan Stanley in April 2011 tightened its AML policies by requiring brokers to provide buy-side confirmations on Venezuelan bond trades at the time of a sale to show that bonds were bought in U.S. dollars. In January 2012, the policy was further tightened by prohibiting Venezuelan securities transactions with any financial institution, with few exceptions.
Bocchino and Barela, who moved to UBS Financial Services in New York within two-and-a-half weeks of their termination by Morgan Stanley in March 2012, each declined to comment on the complaint brought before Finra’s hearing office. Bocchino received gross compensation of about $2.3 million in 2011 and $2.3 million between January and March 2012, making him “one of the largest producers” at Morgan Stanley’s Madison Avenue branch, according to the complaint.
The filing comes amid growing scrutiny of firms’ application of rules aimed at curbing tax evasion, money laundering and other potential criminal activity by clients. Venezuela had close economic ties with Iran, a U.S. designated “state sponsor of terrorism,” at the time of the alleged activities, Finra’s enforcement lawyers wrote in their complaint. They are seeking disgorgement of the brokers’ “ill-gotten gains,” the filing says.
By creating fictitious account names for clients in violation of company policy and without permission of the banks whose nominee accounts were being used, the brokers hindered Morgan Stanley’s efforts to document account and trading records, Finra lawyers argued. Three of the “concealed clients” were not Morgan Stanley customers, according to the disciplinary complaint.
The 13 clients included a wealth management company identified by the initials VGWMG that is headquartered in Miami, with offices in Colombia, Chile and Ecuador, according to the complaint. Others include GSI and COL, which the complaint describes as Finra members headquartered in Miami and Charlotte, NC, respectively. Each was sanctioned last year for violations involving Venezuelan bond currency conversion trades, the complaint says.
In June 2015, Finra censured and fined Global Strategic Investments, LLC, in Miami $200,000 for Venezuelan bond activities. One month later, Capital Guardian, LLC, in Charlotte similarly signed an acceptance, waiver and consent agreement with Finra under which it agreed to pay $125,000 for failing to detect, investigate and report potentially suspicious transactions.
Bocchino wrote in his U-4 BrokerCheck summary that the activities for which he was dismissed by Morgan Stanley involved trades for institutional customers through outside prime brokers that were made at the instruction of his clients. Barela’s U-4 similarly contends that the settlement instructions he made to facilitate trading in the nominee accounts came at the behest of “institutional DVP accounts and management.”
Regarding the allegations of unethical conduct, unauthorized activity and record falsification that Finra alleged on a preliminary basis in January 2016, the brokers wrote that they intend to “vigorously” defend themselves against the charges.
A spokeswoman for Morgan Stanley declined to comment. A spokesman for UBS did not respond to a request for comment on their employment or on its knowledge of their background when it hired them. The brokers’ U-4 comments specify that the investigations do not involve their activities at UBS.
Bocchino and Barela joined Morgan Stanley in 2009 as part of its absorption of Citigroup’s Smith Barney business.