Morgan Stanley to Pay $950K Over Broker’s High-volume Trading
Morgan Stanley Wealth Management agreed to pay $949,574 in fines and customer restitution for allegedly failing to supervise a broker who excessively traded corporate bonds and preferred securities for five years.
Despite receiving hundreds of alerts, and concluding in a compliance review that the broker’s recommendations were costing his customers “more money than they are making,” the wirehouse merely checked with the customers to see if they were satisfied and let the trading pattern continue, according to an acceptance, waiver and consent letter the Financial Industry Regulatory Authority published on Wednesday.
The document, which Morgan Stanley signed without admitting or denying the findings, identified the broker who made the allegedly unsuitable short-term trades by his initials, KG.
In September 2019, a former Morgan Stanley broker named Kevin Gunnip signed a consent letter in which he agreed to a bar from working in the securities industry because of his refusal to cooperate with Finra’s investigation. A person familiar with the Morgan Stanley sanctions confirmed that the broker was Gunnip. His BrokerCheck history indicates he spent his 22-year career as a registered rep with the wirehouse in Fort Worth and Southlake, Texas.
Gunnip voluntarily resigned from Morgan Stanley in February 2018 while under review for his trades, according to his BrokerCheck record.
In pursuing Morgan Stanley, Finra enforced its longstanding requirement that firms investigate red flags of potential misconduct and take appropriate action. The wirehouse received alerts warranting further review of KG but “did not take sufficient action,” according to the enforcement letter.
One example: After an alert about high costs, “the branch manager and KG called the customer to discuss her account, but after the customer confirmed that she was satisfied with the management of her account generally, KG continued to recommend short-term trades of corporate bonds and Morgan Stanley did not take reasonable steps to review whether such recommended trades were suitable,” the letter said. It did not name the manager.
Even after ultimately instructing KG in January 2016 to stop the short-term trading, he recommended a small number of the bond and preferred securities trades from June of that year through January 2017, according to the letter.
“We are pleased to resolve this matter, which concerns a former employee,” a Morgan Stanley spokeswoman said in a prepared statement.
The firm agreed to a $175,000 fine and to pay $774,574 in restitution to eight customers who lost money due to the broker’s trading between January 2012 and December 2017, according to the letter. Morgan Stanley previously reached settlements with two other customers, it said.
Gunnip’s BrokerCheck history discloses three settlements with customers who alleged excessive or unsuitable trades. The largest claim, for $2 million over debt, equity and in-house wrap account transactions, was settled in 2017 for $614,000. The others, which together sought $600,000, were settled for a total $295,000 in 2016 and 2017.
Gunnip could not be reached for comment.