Morgan Stanley pays $1 million to settle churning claims by ex-broker’s clients

New Hampshire regulators find former broker Justin Amaral traded excessively in three clients' accounts

Morgan Stanley and the New Hampshire Bureau of Securities Regulation last week said they had reached a $983,000 settlement stemming from the firm’s failure to supervise a former broker’s excessive trading and other unauthorized activities in three clients’ accounts.

The broker, Justin Amaral, resigned from Morgan Stanley in 2014 after he faced allegations related to his status as both an executor and beneficiary of a client’s estate and his use of discretion when trading in clients’ accounts, according to his BrokerCheck profile. A year later, he was barred from the securities industry by the Financial Industry Regulatory Authority Inc.

As part of the settlement, Morgan Stanley is paying $483,000 to three New Hampshire clients who incurred losses. The firm maintains its compliance systems were appropriately designed, according to a press release the New Hampshire Bureau of Securities Regulation released last Thursday. The firm is also paying an administrative fine to New Hampshire of $450,000 and costs of $50,000.

“We are pleased to resolve this matter which concerned conduct that ended in May 2014,” said Morgan Stanley spokesperson Christine Jockle.

In 2015, Morgan Stanley lost a Finra arbitration claim of more than $1 million to an elderly woman who claimed she had been ripped off by Mr. Amaral.

During the course of the investigation by the New Hampshire regulators, the Bureau of Securities determined that Mr. Amaral had made excessive trades and churned the clients’ accounts. The churning generated steep commissions and well outstripped each client’s gains, according to the bureau.