Category Archives: Morgan Stanley News

Former LPL, Berthel Fisher, and Morgan Stanley Broker James Scott McKee Pleads Guilty to Securities Fraud

On October 25, 2013, former securities broker James Scott McKee  pled guilty to nine counts of aggravated theft and securities fraud in connection with a string of customer funds thefts between 2008 and 2010.

The Financial Industry Regulatory Authority (FINRA) previously banned McKee from working in the securities industry effective October 11, 2012.  According to McKee’s FINRA records, he improperly induced customers to invest in outside real estate ventures, and embezzled money from customer accounts to pay off past investors and personal expenses.  In one case, McKee recommended that a church invest $100,000 in a risky startup real estate venture.  McKee forged company documents, including suitability and disclosure reports to further his scheme.

In June 2013, 19 investors who have suffered losses as a result of McKee’s apparent wrongdoing filed a lawsuit against Steve Master and the companies Master owns seeking $2.5 million in damages.  The lawsuit claims that Master and his companies benefited from McKee’s scheme and are therefore liable for their losses.

McKee was a registered representative of the following broker-dealer firms:  LPL Financial Corporation, Eugene, OR (11/2002 – 09/2008); Berthel, Fisher & Company Financial Services, Inc., Springfield, OR (09/2008 – 11/2010); and, Morgan Stanley Smith Barney, Eugene, OR (12/2010 – 10/2011).

Brokerage firms are required to enforce supervisory systems reasonably calculated to ensure that their brokers are acting in compliance with all applicable rules and regulations.  It appears that McKee’s former broker-dealer firms may have failed in this respect.  It is possible that McKee’s customers may be able to recover their losses by pursuing claims against these firms for their supervisory failures through arbitration at FINRA Dispute Resolution.

FINRA records show a total of 19 customer complaints have been filed against McKee’s former brokerage firms in connection with his wrongdoing.  FINRA records show that some of these arbitration claims have resulted in substantial settlements.

Former customers of McKee are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 to discuss recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

Morgan Stanley Customers Bear All of Managed Futures Funds’ Risks but Enjoy None of Rewards

Recent articles in Bloomberg News and the Washington Post have exposed Morgan Stanley’s unfair practices in connection with both its management of managed futures funds and its sale of these investments to retail brokerage customers.

Morgan Stanley Smith Barney Spectrum Technical L.P. is an example of one Morgan Stanley managed futures fund that appears to have existed purely for the benefit Morgan Stanley at the expense of investors.

According to the Bloomberg article, Spectrum Technical raised $797 Million between 2002 and 2012 and experienced trading gains of $490 Million during this period.   Based upon this data, one would think that Spectrum Technical would have been a great investment.

Amazingly, Spectrum Technical  experienced an overall loss during this period.  This is because it paid $497 Million in fees, expenses, and commissions to Morgan Stanley and various outside commodity trading advisers, approximately $7 Million more than its trading gains.

Morgan Stanley’s brokerage/financial advisory division made massive commissions selling this product.  The general partner of the fund which reaped massive management fees — Ceres Management LLC — is a wholly-owned subsidiary of Morgan Stanley.

This investment never made any sense for Spectrum technical’s limited partners.  No rational investor receiving a fair disclosure of the skewed risk versus reward balance would have put capital at risk for the opportunity to pay any windfall in trading profits to Morgan Stanley and to commodity trading advisers in fees, commissions, and expenses.   Investors essentially gave Morgan Stanley money to gamble, Morgan Stanley won big at the casino, but Morgan Stanley gave none of the winnings back to the investors.

It appears that Morgan Stanley misled many of its brokerage customers.  Morgan Stanley apparently presented rosy charts showing how well certain managed futures funds had performed during the past two decades.  However, the effects of fees and commissions are not fairly addressed in the fund’s prospectuses.

These problems are not limited to Morgan Stanley.  According to the Bloomberg articles, 63 managed futures funds were required to report information to the SEC over the last ten years due to their size.  In aggregate, 89% of the trading profits from these 63 funds were eaten up by fees, commissions, and expenses during this period. Interestingly, BarclayHedge, a company which tracks the performance of managed futures funds, only looks at trading performance and does not keep track of the performance of funds net of fees.

Spectrum Technical is a Delaware limited partnership.  Under Delaware law, a general partner owes fiduciary duties to the limited partnership.  As a fiduciary of Spectrum Technical, Ceres Management — the Morgan Stanley subsidiary that is the general partner of Spectrum Technical — was required to put the interests of Spectrum Technical above its own interests.   By managing Spectrum Technical in such a manner that the partnership bore all of the risks, but stood no real chance of success, it appears that Ceres breached fiduciary duties.

The names of nine Morgan Stanley managed futures funds appear below:

Morgan Stanley Smith Barney Spectrum Strategic L.P.

Morgan Stanley Smith Barney Spectrum Technical L.P.

Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.

Morgan Stanley Smith Barney Spectrum Global Balanced L.P.

Morgan Stanley Smith Barney Spectrum Strategic L.P.

Morgan Stanley Smith Barney Spectrum Select L.P.

Polaris Futures Fund L.P.

Meritage Futures Fund L.P.

Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.  Investors in Spectrum Technical, and in other managed futures funds, are encouraged to contact our law firm at 312-443-1600 to discuss their legal rights.