An arbitration panel has held Morgan Stanley liable for negligence and ordered the firm to pay $843,000 in damages after failing to prevent an elderly client from falling victim to a sophisticated financial scam that drained nearly $1.75 million from her accounts.
The case highlights the ongoing risks of elder financial abuse and raises questions about the role of financial advisors in identifying and preventing fraudulent transactions. The client, Marjorie Kessler, a 75-year-old widow from Florida, alleged that her Morgan Stanley advisor failed to intervene when she initiated two substantial and unusual withdrawals totaling nearly $2.1 million in July and August 2023. These transactions represented roughly one-third of her assets held with the firm and were funneled into an external account later accessed by fraudsters.
According to Kessler’s statement of claim filed with the arbitration panel, which was convened by brokerage industry self-regulator Finra, she fell victim to scammers impersonating a technical support agent, a bank representative, and a government official. The fraudsters convinced her that her identity had been stolen and was linked to a criminal investigation involving child pornography. They claimed she faced a prolonged asset freeze and instructed her to convert her funds into cash, gold bars, and cryptocurrency, allegedly to be held in a U.S. Treasury account under a new Social Security number.
The central issue in the dispute was whether Kessler’s Morgan Stanley advisor should have recognized the warning signs of fraud and taken steps to protect her. Given the substantial and atypical withdrawals, along with Kessler’s request for secrecy from her son—who was also a client of the advisor and routinely involved in managing her finances—the arbitration panel considered whether the firm had an obligation to intervene or notify family members.
Morgan Stanley, in its defense, asserted that Kessler had a history of independently managing her finances since her husband’s passing in 2005 and described her as “incredibly sharp.” The firm argued that Kessler misrepresented her intentions for the funds, initially claiming that she planned to purchase a new condominium for herself and another for her daughter. Additionally, Morgan Stanley noted that she falsely told her advisor that she had retained an attorney to oversee the transactions and that she expected to replenish her accounts with $2 million from the sale of her previous condo.
A spokesperson for Morgan Stanley emphasized that while the firm sympathized with Kessler’s situation, the fraud itself did not originate within Morgan Stanley and that the firm should not be held responsible for her losses. “Ms. Kessler made misstatements to her financial advisor regarding the purpose of the transfers and authorized them to be sent to a third-party bank account held in her name,” the spokesperson stated.
However, Kessler’s attorney, Lloyd Schwed, countered that Morgan Stanley’s position ignored the well-documented tactics used by scammers, who frequently coach victims to fabricate plausible cover stories to facilitate the unauthorized release of funds. He argued that the firm disregarded multiple red flags, including the abrupt and substantial withdrawals, the secrecy request regarding her son, and the explanation that she needed over $2 million in eight days for two home purchases. Schwed pointed to Morgan Stanley’s own compliance policies, which identify such scenarios as indicators of potential elder financial exploitation.
At the arbitration hearing, Kessler sought $1,744,470 in damages, along with reimbursement for the costs of the proceedings. She alleged that Morgan Stanley had been negligent, breached its contractual obligations, and failed to uphold its fiduciary duty and duty of care to a senior investor. The arbitration panel ultimately awarded her $843,000, less than half of her original claim, but still a significant ruling against the firm.
The case underscores the heightened responsibility financial advisors and firms bear in protecting elderly clients from financial exploitation. With regulatory bodies and investor advocates increasingly focused on preventing elder financial abuse, this ruling serves as a reminder for advisors to be vigilant in recognizing suspicious transactions, questioning clients about unusual requests, and taking steps to safeguard vulnerable investors from fraudulent schemes.
