Just when you thought that you heard it all.
The New York Stock Exchange disciplined former Morgan Stanley stockbroker Charles Winitch of Scarsdale, New York, for unauthorized trading, churning or excessive activity, and breach of fiduciary duty with respect to the accounts of his customers.
Mr. Winitch’s fraudulent conduct, however, relates to the accounts of children, who each received large sums of money as a result of medical malpractice claims, which was to be used for their long term care and living expenses.
Charles Winitch’s Fraudulant Activity
In at least eight accounts, for the benefit of eight different children, established by their parents or guardians, and in most cases the only funds that these families had, Winitch engaged in the short term trading of Municipal bonds and United States bonds and treasury strips (“STRIPS”), generating in excess of $563,000 in commissions and fees.
In four of the eight cases, the children were from single parent homes, with the single parent being unemployed. In one case, the family did not speak English, as their primary language, and in another case, one parent was employed as a bus driver, and the mother as a school aid. In all cases, none of the parents had any prior investment experience, and the sums that they received from the medical malpractice claims of their children represented substantially the families only asset.
For example, in one case, a guardian account was opened for the benefit of a child (to provide care and furnish income), age 12, based on an award pursuant to a medical malpractice lawsuit.
New account documents reflect that the child’s mother and guardian, was single and unemployed, that she had no investment experience, and her annual income was listed as $100,000; the child’s net worth was listed as $1,000,000 (almost all of which was derived from the malpractice award); but the accounts investment objectives were, in order of priority, income, aggressive income, capital appreciation and speculation.
The child’s account was worth approximately $1,007,387. However, during the relevant period, Winitch effected 24 short-term STRIPS transactions, with no position held longer than five months, and generated approximately $95,802 in commissions and fees.
Nonetheless, in each of these cases, the Morgan Stanley new account forms falsely indicated that these individuals had six figure incomes, a multi-million dollar net worth and were interested in trading and speculation, and otherwise had the highest, most aggressive tolerance for risk or investment objective.
Morgan Stanley’s Failure to Supervise
It also appears that Morgan Stanley did absolutely nothing to supervise Mr. Winitch, and ultimately only fired him after a regulatory investigation was commenced by the New York Stock Exchange.
FINRA Censured & Suspended Winitch
The regulators, or self-regulatory authority, now known as the Financial Industry Regulatory Authority, or FINRA, of which Morgan Stanley is a member, based upon this conduct, “censured” Winitch and suspended him for a period of five years, meaning that in five years, after falsifying new account documents, and basically stealing from the accounts of disabled children, Winitch is free to be a stockbroker and a fiduciary once again.
However, perhaps not. But certainly not as a result of the securities regulators.
On December 10, 2010, following the filing of a Criminal Information against him, Winitch pled guilty in White Plains federal court to participating in a scheme to defraud and is scheduled to be sentenced on March 18, 2011, where he faces a maximum term of 20 years in prison, fines of up to $250,000, or twice the gross gain/loss resulting from the offense, restitution, and forfeiture of his ill-gotten gains.
The moral of the story is that even under the most egregious circumstances, most major brokerage firms do not supervise the activities of their registered representatives. They believe that falsely overstating a person’s overall financial condition or tolerance for risk absolves them and insulates them from all liability, and that even when they get caught, the regulators will only give them a slap on the wrist. Interestingly enough, Morgan Stanley was not cited for failing to supervise Winitch.
If you have been a victim of securities fraud or wrongful conduct by your stockbroker or investment advisor, you need to take legal action by hiring a competent attorney to sue them to recover your damages.
Guiliano Law Group
Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.