State Resolves Case Of Broker Who Defrauded Clients
Attorney General Spitzer today announced a settlement with Morgan Stanley DW Inc., a wholly owned subsidiary of Morgan Stanley, for failing to supervise one of its brokers who defrauded 15 customers of more than $740,000.
Gabriele Tamar Smith, who was a registered broker in Morgan Stanley DW Inc.'s White Plains office between 1997 and 2001, was the subject of numerous consumer complaints during her tenure at Morgan Stanley. The Attorney General's investigation found that she mismanaged customer accounts by engaging in excessive, unauthorized and unsuitable trading, signing wire transfers and new account documents without customer authorization and failing to inform her clients of the risks of trading on margin. Smith's excessive trading generated large commissions for her, at her clients' expense. Many of the defrauded customers were senior citizens or people with little knowledge of the stock market.
In one case, Smith made over $1 million in trades on an account worth only $60,000, pocketing more than $15,000 in commissions while her client lost almost everything in less than a year. In another case, Smith signed a client's name on wire transfer documents and wired $20,000 out of her client's account into an attorney escrow account held for Smith for the closing on the purchase of her new home. Smith also opened a new account for a client and requested margin privileges on the application without the client's knowledge or consent even when Smith knew her client had previously declined margin privileges. In another instance, Smith failed to inform a senior citizen of the risks of trading on margin and lost the client's entire savings.
Morgan Stanley DW Inc. failed to supervise Smith properly, failed to notify her clients of her wrongdoing, and failed to conduct an internal review of her accounts, even though the firm was on notice that she was mishandling accounts. Indeed, Morgan Stanley settled two arbitration claims with Smith's clients, one for $1.9 million and the other for $300,000. In March of 2003, the NASD barred Smith from associating with any NASD member firm.
Under the terms of the settlement, Morgan Stanley DW Inc. has agreed to pay restitution in the amount of $740,964.18, and costs and penalties totaling $300,000.
This investigation and settlement was handled by Assistant Attorney General Yasmin Rahman Kutty, under the supervision of Judith McCarthy, Assistant Attorney General in Charge of the Westchester Regional Office, and in conjunction with the Investment Protection Bureau First Deputy Bureau Chief Gary Connor, Assistant Attorney General Michael Jones and with assistance from Investigator John Slevin of the Westchester Regional Office.