Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who have violated securities laws. When brokerage houses or investment advisers make big “block” stock trades, there are numerous rules they must follow to ensure that other investors don’t get burned. They are not allowed to “front run,” an illegal brokerage practice of a stockbroker placing an order for their own account ahead of the client’s, knowing when the client’s order is placed it will move the market and create a profit for the broker.
Disruptive Technology Solutions LLC, a software services company, and affiliated funds, have filed a demand for arbitration against Morgan Stanley with FINRA, the federal securities industry regulator, according to The Wall Street Journal.
“Disruptive alleges that Morgan Stanley and a senior executive there leaked information ahead of the fund’s sale of more than $300 million of Palantir in February 2021, resulting in tens of millions of dollars in damages,” the Journal reports. Disruptive is seeking compensatory and punitive damages. Palantir is a software firm that provides a wide range of platforms from artificial intelligence to supply chain products.
“The Securities and Exchange Commission and Justice Department are investigating whether banks tipped off clients to block trades, in which insiders sell big chunks of stock through a broker such as Morgan Stanley. Block trades can cause the stock in question to decline, so knowing about one ahead of time can help an investor gain on a short sale or avoid a loss by unloading shares that are already owned.”
If you’re an individual investor, when a firm does front running it could hurt the value of your holdings. Insider trading has been a frequent problem on Wall Street because it confers an unfair advantage to firms that engage in this illicit practice. If there’s evidence of brokerage front running, you may be able to file a FINRA arbitration claim.
Morgan Stanley has run afoul of securities laws in the past. In 2017, FINRA fined Morgan $3.25 million and required the firm to pay approximately $9.78 million in restitution to more than 3,000 affected customers for failing to supervise its representatives’ short-term trades of unit investment trusts (UITs). FINRA found that “from January 2012 through June 2015, hundreds of Morgan Stanley representatives executed short-term UIT rollovers, including UITs rolled over more than 100 days before maturity, in thousands of customer accounts.”
Have you invested with brokers who have sold you money-losing or overpriced investments or traded without your permission? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk or vet shady companies offering investments, you may have a case in arbitration.
Brokers must carefully vet all trades and investments with you to ensure that the vehicles they are selling meet your financial goals and risk tolerance. They must also receive your written permission to use “leveraged” investment strategies, which employ greater risk and potential for loss. If you choose to take on more risk, they must explain in clear detail the downside of such an investment.
Investors can file FINRA arbitration complaints if these rules are broken. You can often avoid rogue broker-advisors by checking their backgrounds through BrokerCheck, If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!
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