In an agreement with the Securities and Exchange Commission (SEC), Morgan Stanley will pay a $500,000 penalty to settle charges that it misled customers in its Nashville office about various money management firms recommended to clients and from which Morgan Stanley later profited via large commissions. 

Contrary to its disclosures and corporate policies, Morgan Stanley recommended some money managers who were not approved for participation in the firm’s advisory programs and therefore had not been subject to the firm’s due diligence review.

The SEC also charged William Keith Phillips, a former Morgan Stanley investment advisor in Nashville, of steering investors to the unapproved money managers so that he could receive financial kickbacks. The SEC says Phillips’ use of unapproved money managers earned Morgan Stanley at least $3.3 million in extra commissions.

The SEC’s case with Phillips is still pending. 

This isn’t the first time complaints have been lodged against Phillips. As reported July 21 in The Tennessean, Phillips apparently has a lengthy history of previous misconduct accusations, including those from the Chattanooga Pension Fund, the Nashville Electric Service and Metro Nashville Pension Plan. In 2004, the Chattanooga Pension Fund accused him of costing the fund $20 million in losses, undisclosed commissions and fees.

Ultimately, UBS Financial Services, which acquired Phillips’ employer PaineWebber, paid $675,000 to settle the case in 2006, according to the Financial Industry Regulatory Authority (FINRA), according to the article. A much larger payout was made by the Swiss-based bank in 2002 after Metro Nashville complained about the way in which Phillips handled its pension.

UBS paid more than $10 million to settle those issues. UBS also settled with the Nashville Electric Service, agreeing to pay $440,000 for similar accusations levied against Phillips.

Dozens of retirees from Xerox Corp. and Eastman Kodak will soon share in a welcome pay-out after the Financial Industry Regulatory Authority (FINRA) ruled investment firm Morgan Stanley must pay $7.2 million to settle charges that two of its brokers wrongly persuaded 90 Rochester, New York, employees to take early retirement. Ultimately, the false promises of big profits and unsuitable investing strategies cost many of the investors their life savings. 

FINRA’s ruling breaks down to $3 million in fines and $4.2 million in restitution to the retirees. In addition, former Morgan Stanley broker Michael Kazacos is permanently barred from the securities industry. The second former Morgan Stanley broker, David Isabella, was charged with misconduct. His case must still go before a three-person FINRA hearing panel. Ira Miller, who managed both Kazacos and Isabella, has been suspended from acting as a supervisor for one year and fined $50,000. 

According to a March 25 statement issued by FINRA, from the years of 1998 to 2003, Kazacos allegedly solicited potential clients from Kodak and Xerox by promising them at least 10% annual returns on their investments with Morgan Stanley. He also reportedly told clients they would be able to keep up their current lifestyles by withdrawing 10% every year and not touch their principal.  

FINRA has charged Isabella with similar misconduct. As reported March 26 by 13WHAM-TV in Rochester, New York, Gerald Miller is one of the individuals who followed Isabella’s advice. Miller, who worked for Xerox, was told by the former Morgan Stanley broker that he would “make him a millionaire in 10 years.” Instead, three years after investing with Isabella, Miller learned that he and his wife needed to drop their 10 percent draw and that they were “going to run out of money in five years.” 

The Millers were later told by Isabella that they might need to sell the lakefront home they previously purchased for their retirement years, according to 13WHAM-TV. 

Other retirees are in the same predicament as the Millers. Some have financial issues, while others are headed toward bankruptcy because they retired too early. 

Morgan Stanley’s settlement with FINRA comes out to approximately $45,000 a person, far below the amount of money many retirees actually lost in the early retirement investment promotion.