Protocol Footnote: Morgan Stanley Broker Suspended for Taking Customer Data
While Morgan Stanley left the Protocol for Broker Recruiting in part because it was losing many more advisors to smaller firms than it was gaining from them, a new regulatory case shows that the the shoe is sometimes on the other foot.
Phillip J. Leach, a Morgan Stanley broker in Memphis, agreed last week to a 45 calendar-day suspension from working in the U.S. brokerage industry and a fine of $5,000 for taking account numbers, trading histories and personal information of 52 customers with him from Carty & Co. to Morgan Stanley in April 2016, according to a Financial Industry Regulatory Authority acceptance, waiver and consent letter accepted by the regulator on November 9.
Leach, who agreed to the sanctions without admitting or denying the facts, caused his former firm to violate the Securities and Exchange Commission’s Regulation S-P by downloading the data onto a portable storage device and also falsely attested in his resignation letter to Memphis-based Carty that he had not removed any confidential or proprietary documents or materials, according to the consent letter.
Under the Protocol agreement among some 1,500 firms, advisors who move from one signatory firm to another can take rudimentary customer contact information without fear of being sued or brought to arbitration, a right that Morgan Stanley brokers have now lost.
Carty is not a member of the Protocol, so no information Leach took would have been protected, but sources noted the irony of Morgan Stanley having hired from a minnow and coming out on the losing side. (The data that Leach illegally took included social security numbers of clients and, in one case, the social securities numbers of an account’s beneficiaries, according to the Finra consent letter.)
Memphis-based Carty, which employs about 40 brokers who primarily trade and sell municipal bonds, brought an arbitration claim against Morgan Stanley and Leach after he left in the spring of 2016, said Bill Carty, the firm’s president. The case has been settled, and the firm has not been sanctioned for the privacy violation caused by Leach.
Carty declined to discuss the monetary settlement that the firm received.
A woman answering Leach’s phone at Morgan Stanley’s Memphis office said she was instructed not to comment about the case or about Leach, who since joining Morgan Stanley has received a Series 65 license to serve as an investment adviser. A Morgan Stanley spokeswoman declined to comment about Leach or his future with the firm.
“He was an up-and-coming broker, and he was going to be a good one,” said Carty, whose father, a former Merrill Lynch broker, founded the firm in 1970.
The SEC fined Morgan Stanley $1 million in June 2016 for systems lapses that allowed a broker to download data on 730,000 retail customers to his personal server. Galen Marsh, the former broker whose server was subsequently hacked by outsiders who posted some of the data online, avoided prison but was sentenced to three years probation and ordered to pay Morgan Stanley $600,000.