Jeffrey Michael Johnson, of Birmingham, Michigan, a stockbroker formerly registered with Morgan Stanley Smith Barney, has been fined $10,000.00 and suspended for seven months from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity based on allegations of selling away from his firm. Letter of Acceptance, Waiver and Consent, No. 2016049341201 (Oct. 23, 2017).
According to the AWC, on December 11, 2013, Johnson and customer CK co-created Teaser Fever – a fantasy sports company holding intellectual property that Johnson and CK hoped to use within a smart phone application and internet site. The AWC stated that another company, FourPlay Sports, LLC, was created by Johnson and CK in April 2014, with a similar approach of designing applications for fantasy sports betting. Evidently, Johnson and CK entered into business contracts with vendors and hired administrative personnel, and invested funds to pursue FourPlay Sports’ business initiatives. Apparently, Johnson disclosed FourPlay Sports to Morgan Stanley as an outside business activity and sought approval, but was met with the firm’s rejection based on CK’s involvement in FourPlay Sports.
Apparently, Johnson continued engaging in business activities in FourPlay Sports despite the firm having rejected his involvement, where he actively participated in the company’s development alongside CK. Apparently, Johnson and CK solicited investors, generating $310,00.00 in funds by issuing convertible promissory notes to eleven investors – four of whom were Morgan Stanley customers. Apparently, Johnson failed to inform Morgan Stanley that he was soliciting customers’ investments in FourPlay Sports, LLC, and went as far as denying his participation in private securities transactions when questioned by Morgan Stanley in 2015. The AWC stated that Johnson’s private securities transactions had not been authorized by the firm at this point.
The AWC revealed that Johnson attempted in November of 2015 to get Morgan Stanley to participate in the securities transactions involving FourPlay Sports, LLC. Evidently, he omitted from Morgan Stanley’s consideration that he owned FourPlay Sports, managed the company, and solicited the promissory notes arrangements involving eleven investors which included customers of the firm. Morgan Stanley apparently accepted Johnson’s proposal based on the lack of information communicated to it by Johnson regarding FourPlay Sports; however, his activities were later discovered upon the initiation of a customer complaint.
Johnson was ultimately fired by Morgan Stanley upon the firm discovering his omissions. FINRA concluded that Johnson sold away from his firm, and found his conduct violative of FINRA Rules 2010, 3270, 3280 and NASD Rule 3040.
Morgan Stanley Smith Barney terminated Johnson on February 22, 2016, based upon allegations that he engaged in outside business activities that were not approved by the firm, and for improper conduct in the handling of a customer’s investment portfolio.
FINRA Public Disclosure also reveals that a customer initiated investment related arbitration claim involving Johnson’s misconduct was settled for $7,000.00, based upon allegations that between 2009 and 2014, Johnson breached his contractual and fiduciary duties to the customer, violated the Uniform Securities Act of the State of Michigan, negligently handled the customer’s account, and committed fraud regarding equity transactions effected in the customer’s investment account. FINRA Arbitration No. 17-01186 (July 24, 2017).
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