Terry Lee McCoy of Palm Harbor Florida a stockbroker and supervisor employed by Morgan Stanley has been fined $75,000.00 and barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any principal capacity based upon consenting to findings that he failed to supervise two registered representatives that placed excessive and unsuitable trades in customer accounts. Letter of Acceptance Waiver and Consent No. 2016049321301 (June 15, 2018).
According to the AWC, between September of 2011 and July of 2012, McCoy was Morgan Stanley’s Palm Harbor branch manager, and was responsible for supervising the trading conducted by all of the registered representatives within that branch. The AWC stated that one of McCoy’s subordinates, AF, was listed on accounts owned by customer RS – an investor who suffered from dementia, and another of McCoy’s subordinates, CL, was directed by AF to place trades in RS’s account.
The AWC stated that while RS suffered from dementia, AF and CL exercised discretion in RS’s six accounts, placing trades that were excessive and unsuitable. Evidently, AF and CL collectively placed over two thousand trades in RS’s six investment accounts, allocating RS’s money in a myriad of municipal and corporate bonds. The AWC revealed that none of RS’s accounts had been authorized by the firm, nor RS, for trading to be effected on a discretionary basis. In addition, trades often consisted of in-and-out movements of RS’s position in the same bond within short time spans – weeks or months in certain cases. Consequently, nine million dollars in commissions had been accumulated within RS’ account.
Throughout this period, McCoy reportedly failed to adequately monitor transactions that CL and AF placed in RS’s account despite there having been obvious issues that should have raised McCoy’s suspicions. McCoy apparently neglected to identify unsuitable and excessive trading. The AWC stated that RS’s account performance and cost information were available to McCoy, and McCoy even met RS a number of times throughout the period that transactions had been placed in RS’s account.
Evidently, the losses and elevated cost-to-equity ratio caused Actimize Reports to have been generated within the firm; however, the information detailed in those reports had never been communicated to McCoy. Furthermore, RS’s objectives for investing – months prior to his death – apparently changed from income to speculation without RS’ authorization. McCoy purportedly failed to identify that RS’s objectives had been modified despite the firm’s electronic systems having generated an alert for him.
The AWC additionally stated that AF and CL’s exercise of discretion in RS’s account was not detected by McCoy even though McCoy met with RS frequently. Despite RS having showed signs of serious mental declines, McCoy seemingly failed to pick up on the use of discretion in RS’s account. FINRA stated that the nature of those trades should have been investigated by McCoy but were not. FINRA found that McCoy’s supervisory failures were violative of FINRA Rules 2010, MSRB Rule G-27 and NASD Rule 2010(b).
FINRA Public Disclosure reveals that McCoy is referenced in three customer initiated investment related disputes containing allegations of his wrongdoing while employed with Morgan Stanley. Specifically, a customer initiated investment related arbitration claim involving McCoy’s activities was settled for $185,000.00 in damages founded on accusations of securities violations having been committed in reference to equity transactions executed in the customer’s account by McCoy’s subordinates. NASD Arbitration No. 01-05204 (Dec. 31, 2002). Thereafter, a customer initiated investment related arbitration claim regarding McCoy’s conduct was resolved for $35,000.00 in damages supported by allegations of sales practice violations pertaining to the customer’s over-the-counter equities investments. NASD Arbitration No. 02-02795 (Sept. 12, 2003).
Further, McCoy was subject of a customer initiated investment related arbitration claim where the customer was awarded $32,840,000.00 in damages according to an arbitration claim in which McCoy was found liable on the customer’s claims including, inter alia: unjust enrichment; violation of Chapter 517, Fla. Stat.; violation of Chapter 415, Fla. Stat., suitability; breach of fiduciary duty; failure to supervise; churning; unauthorized trading; and fraud. FINRA Arbitration No. 13-00549 (Mar. 21, 2016).
McCoy’s registration with Morgan Stanley has been terminated as of November 14, 2016.
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