Investors Win $825,000 in FINRA Arbitration Against Morgan Stanley
A FINRA arbitration panel awarded $825,000 to two Morgan Stanley Smith Barney, LLC clients after finding that Morgan Stanley failed to perform proper due diligence in the hiring of a broker. According to the arbitration panel, the “hiring process was not sufficient to vet the financial advisor who was the cause of the losses incurred by the Claimants.”
The broker, Anna Khai (a.k.a. Anna Khatchatrian), convinced Morgan Stanley customers to invest in non-approved investments, borrowed money from clients, and used firm infrastructure (including computers, office space and emails) to conduct these transactions. The $825,000 award is a combination of $660,000 in compensatory damages and an additional $165,000 in punitive damages plus interest.
FINRA rules dictate that brokerage firms must investigate the character, business reputation, qualifications, and job experience of a broker prior to hiring the broker.
FINRA does not define the scope of an investigation that a brokerage firm must perform – including a background investigation, credit checks, references and more – but the arbitrators in this case found that Morgan Stanley failed to meet its obligation before hiring Ms. Khai.
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