Morgan Stanley & Co. lost a FINRA arbitration dispute last week to Banco Nacional de Mexico SA. A FINRA panel ordered Morgan Stanley to pay the Mexican bank, commonly referred to as Banamex, $4.5 million, finding Morgan Stanley liable for negligence and negligent supervision.
The case was filed by the bank against Morgan Stanley in 2012. The statement of claim alleged fraud and negligence among other allegations and asked the FINRA panel to order Morgan Stanley to pay over $5.2 million. The dispute centered on whether Morgan Stanley allowed funds in a family’s trust account to be used to repay third-party loans without its authorization.
The trust was established in 2007 with proceeds from the sale of property that a group of adult siblings and their mother had inherited. Banamex was the trustee to the family’s trust account and hired a broker at Morgan Stanley to manage the accounts that same year.
The trust accounts were held at a banking unit of Morgan Stanley & Co and managed by the brokerage unit. They were set up in a way that did not allow the assets to be used as guarantees to pay off third-party loans taken by another family member’s account. Banamex alleged that Morgan Stanley caused the trust accounts to guarantee payment of third-party loans of a family member without Banamex’s authorization.
Morgan Stanley spokeswoman Christine Jockle wrote, “We are disappointed in the arbitration panel’s award. We believe that the evidence showed that the patriarch of the family pledged the trust accounts as collateral for loans that benefited the family, and those accounts were treated that way for the two year period at issue.”
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