Until recently, Clifford Jagodzinski worked at Morgan Stanley Smith Barney as a Complex Risk Officer. Mr. Jagodzinski’s job duties included identifying potential compliance risk issues and enforcing securities law violations.
According To The Lawsuit
According to a lawsuit filed in federal court, as part of his officicail duties, Mr. Jagodzinski detected that a particular broker, Harvey B. Kadden, was flipping preferred securities in a manner that was generating tens of thousands of dollars in commissions but causing losses or minimal gains for his clients and exposing his clients to unnecessary risks. According to Jagodzinski, these trades were obviously designed to bilk investors.
However, Harvey Kadden leads a four-man team which had combined production of more than $14 million in the trailing 12-month period and manages assets in excess of $1 billion. Morgan Stanley also had apparently had given Kadden a $25,000,000 guarantee for signing on with Morgan Stanley Smith Barney, and consequently, had very significant earnings expectations and a very significant investment in Kadden which according to the lawsuit Morgan Stanley did not want jeopardize.
Mr. Kadden has been listed regularly on the Barron’s Top 1,000 advisers list.
Jagodzinski Reported Unauthorized Trades
In December 2011, Mr. Jagodzinski reported these trades to his supervisors, David Turetzky and Ben Firestein. At first, the supervisors were very pleased with Mr. Jagodzinski and gave him a pat on the back for raising the red flag about Mr. Kadden, according to the Complaint.
According to the complaint, after he learned that another broker was making unauthorized trades on behalf of a client, that broker admitted to making 80 such trades.
Between December 2011 and April 2012, Mr. Jagodzinski reported several other violations to Mr. Tutizky including: improper Treasury trades involving executed by MSSB employee, Michael Paisano; the failure of some MSSB financial advisers to register home offices as Alternative Work Locations; and drug abuse by one ofMSSB’s financial advisers.
Supervisors Fire Jagodzinski For Doing His Job
Mr. Jagodzinski also told Mr. Turetzky “that these violations should be reported to the Financial Industry Regulatory Authority Inc.,” but less than 10 days later, Mr. Jagodzinski was fired.”
Mr. Jagodzinski was also told that he would not be paid any severance or given any health care benefits unless he signed a release, confidentiality agreement, and non-disparagement clause.
The moral of the story appears that if you are going to do your job as a compliance or risk manager, don’t jeopardize the multi-million producer.
Guiliano Law Group
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