Morgan Stanley to pay customer $11.7M over alleged unauthorized trading

A panel of Financial Industry Regulatory Authority arbitrators in Florida ordered Morgan Stanley to pay nearly $11.7 million to a customer, Anthony Nowak, over an alleged unauthorized call options strategy, AdvisorHub reported Dec. 1, citing an award letter from the regulator.

The award is in relation to a 2021 suit brought on by Nowak, accusing the company of alleged failure in the supervision of sales of covered calls on large tech holdings, including Nvidia Corp., Tesla Motors, Apple Inc., Salesforce and Microsoft Corp., between 2018 and 2021.

The claimant sought tens of millions in damages for foregone gains, and also requested the reversal of all trades. The complaint also accused Morgan Stanley of negligence, unauthorized trading, failure to supervise and violation of the Florida Securities and Investor Protection Act.

The broker, Craig Thistlethwaite at The Fox Thistlethwaite Group at Morgan Stanley in Perrysburg, Ohio, was an unnamed party in the arbitration. The three public arbitrators denied the bank's request for expungement of the matter from Thistlethwaite's record, AdvisorHub reported.

Nowak also sought sanctions against the bank for allegedly failing to preserve evidence as the lender failed to keep text messages between him and Thistlethwaite regarding the disputed trades. Morgan Stanley said that the messages were on personal phones as Nowak and Thistlethwaite were "close friends and, at times, discussed investments," according to the FINRA award letter.

Morgan Stanley further stated that it "took reasonable steps to ensure the retention of potentially relevant messages", according to the letter. The panel denied the motion for sanctions.

The award of $11.7 million includes $11.5 million in compensatory damages and about $158,000 in costs, according to the award letter, which also left open the possibility of Morgan Stanley having to pay the customer's attorney fees on a court order.

The panel held Morgan Stanley liable for $26,450 of $28,750 in total hearing session fees, according to the award letter.

A spokesperson for Morgan Stanley said that the company "strongly disagrees with the award" and is evaluating its options, including asking a court to overturn the ruling, the news outlet reported.

The FINRA panel reportedly did not provide an explanation for their ruling but said that Nowak "proved" Morgan Stanley's violation of the anti-fraud laws of the state of Florida.

Nowak's lawyers did not respond to a request for comment, AdvisorHub reported.