A group of investors filed a class-action lawsuit on January 15, 2008 seeking nearly $500 million dollars in damages from Morgan Stanley, alleging their broker, Michael James Kazacos, gave them fraudulent investment advice and made false promises to Eastman Kodak retirees that never materialized.
The plaintiffs are all former employees of Eastman Kodak Co in Rochester, N.Y. Four are named in the lawsuit, filed in New York state court in Monroe County, but their lawyer estimates that more than 1,000 people may be members of the class.
The plaintiffs say they would not have retired early, had their broker, Michael James Kazacos, not told them they had enough money to do so and live comfortably. At least one said Kazacos, who has since retired, told her she'd have even more money to spend once she was retired than she did when she was working.
The lawsuit alleges Kazacos assured the Kodak employees that they could expect to withdraw about 10 percent of their savings each year for the rest of their lives without depleting their principal.
Three of the plaintiffs retired in 1998 and the fourth retired in 2000. The amounts the four plaintiffs say they lost after they cashed out of their employer-sponsored retirement plans and put their money with Morgan Stanley range from $120,000 to $320,000.
In addition to the class-action lawsuit, an arbitration claim making similar allegations on behalf of another 16 former Kodak employees was filed at the Financial Industry Regulatory Authority's arbitration forum Wednesday.
Morgan Stanley and Kazacos' lawyer dispute both claims, saying the losses were the result of a crashing market, not misconduct. They say Kazacos explained the risks of investing. Most surprisingly, these complaints have not been reported on Kazacos' FINRA Public Disclosure Reports, arguably as part of an on-going effort to conceal Kazacos' wrongful conduct from the investing public.
The lawsuit and arbitration claim are riding a wave of regulatory concern about early-retirement pitches. FINRA is investigating Morgan Stanley about the Kodak situation.
The National Association of Securities Dealers _ one of FINRA's predecessors _ fined Securities America, a unit of Ameriprise Financial Inc., and Citigroup Inc. in 2006 and 2007 for pitches made by brokers to large groups of employees encouraging them to retire early.
Those firms neither admitted nor denied the charges.
Securities America was hit hard in arbitration for its broker's early-retirement pitches to longtime Exxon Mobil Corp. employees: In 2006, an arbitration panel awarded $22 million to 32 former Exxon employees. It remains one of the largest arbitration awards ever handed down.
Other Morgan Stanley Regulatory Actions:
• Matter of Morgan Stanley DW, Inc., Commonwealth of Massachusetts, Office of the Secretary of the Commonwealth, Securities Division Docket No. E-2003-53 (incentive based compensation relating to the sale of proprietary investment company shares).
• Matter of Morgan Stanley DW, Inc., New York Stock Exchange Division of Enforcement, No. 04-184 (Dec. 3, 2004)(failure to provide prospectuses in connection with the sale of proprietary mutual shares).
• In Re Morgan Stanley DW, Inc., United States Securities & Exchange Commission File No. 3-11335 (Dec. 15, 2003)(consent to $25 million fine in connection with the sale of proprietary investment company shares).
• Letter of Acceptance Waiver & Consent, in the Matter of Morgan Stanley DW, Inc., NASD Regulation, CAF03-0060 (Dec. 17, 2004)(supervision in connection with the sale of proprietary investment company shares).
• Letter of Acceptance Waiver & Consent, in the Matter of Morgan Stanley DW, Inc., NASD Regulation, C10003-0077 (Sept. 15, 2003)(compensation in connection with the sale of proprietary investment company shares).
• Final Order in the Matter of Morgan Stanley DW, Inc., United States Securities & Exchange Commission Rel. 34-43215 (Aug. 28, 2000)(supervision in connection with the sale of proprietary investment company shares).
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