Erez Law recently filed a statement of claim against Morgan Stanley.
The customer alleges that Jaime Sahlstrom (CRD #4722007), a former broker at Morgan Stanley, recommended a speculative and unsuitable investment strategy of investing the client’s accounts in high risk investments which caused her to suffer significant losses to her irreplaceable retirement savings.
The Erez Law client alleges the following in the newly filed FINRA claim:
The client informed Sahlstrom and Morgan Stanley that the funds she was entrusting to Sahlstrom and Morgan Stanley represented virtually all of her irreplaceable retirement savings, and that she was not interested in high risk investments because she could not replace any lost principal. The client repeatedly emphasized to Sahlstrom that she did not need to generate a high degree of income from her investments and was primarily interested in generating a modest degree of income while preserving her irreplaceable retirement savings.
Morgan Stanley recorded the client’s risk tolerance for the client’s account as “Conservative,” which Morgan Stanley defines as “Investors who emphasize principal preservation over return on investment.
Regrettably, despite the client’s documented aversion to high-risk investments and strategies, Morgan Stanley recommended high risk and unsuitable investments and strategies with unacceptable results.
According to the claim, Sahlstrom and Morgan Stanley recommended the client concentrate her portfolio in high risk and unsuitable investments from the volatile energy sector. In fact, Morgan Stanley and Sahlstrom recommended a reckless and unsuitable strategy of concentrating 43% of the client’s assets in speculative and highly correlated energy sector investments. By concentrating the client’s savings in risky investments from the volatile energy sector, Sahlstrom needlessly exposed the client to significant sector concentration risk.
The unsuitable and highly correlated oil and gas investments Morgan Stanley recommended and sold to the client included:
- Alerian MLP ETF
- BlackRock Resources and Commodities Strategic Trust
- Canadian Oil Sands, Ltd.
- Clearbridge American Energy MLP Fund
- Clearbridge Energy MLP Fund
- Clearbridge Energy Midstream Opportunity Fund
- Clearbridge MLP and Midstream Fund
- Clearbridge MLP and Midstream Total Return Fund
- Energy Partners, Ltd
- Nuveen MLP Energy Fund
- Spectra Energy Corp.
- Tortoise Pipeline & Energy Fund
- Tortoise MLP Fund (n/k/a Tortoise Midstream Energy Fund)
- Transocean
Furthermore, Sahlstrom and Morgan Stanley recommended and sold the client several of the same investments in multiple accounts, which needlessly increased the client’s concentration.
Sahlstrom’s unsuitable strategy needlessly exposed the client to the risks associated with energy sector companies that were vulnerable to the same adverse market conditions and ultimately resulted in significant losses to the client’s irreplaceable savings. The client’s losses could have easily been avoided had Sahlstrom simply followed the basic investment principal of diversification. Sahlstrom’s high risk investment strategy significantly increased the risks to which the client was unknowingly exposed.
Erez Law alleges that there was no reasonable basis for dangerously concentrating the client’s savings in high risk and highly correlated risk investments from the volatile energy sector.
It is alleged that Sahlstrom failed to adequately disclose the enormous degree of risk, including sector concentration risk, associated with the speculative and unsuitable investment strategy she employed in the client’s accounts. By failing to adequately disclose the enormous risks associated with her speculative investment strategy, Sahlstrom deprived the client of her fundamental right to make an informed decision about her investments.
Sahlstrom and Morgan Stanley also allegedly recommended the client invest in several high risk and unsuitable mutual funds. One such fund was Third Avenue Focused Credit Fund, a speculative and poorly diversified junk bond fund that was heavily concentrated in illiquid, extremely poor credit quality debt.
The Third Avenue Focused Credit Fund was inherently speculative and grossly unsuitable for the client. In December 2015, just six months after Sahlstrom purchased it in the client’s account, the Third Avenue Focused Credit Fund’s managers announced the fund was being completely liquidated as a result of the fund’s severe losses.
It is alleged that Sahlstrom also recommended several leveraged, high risk and unsuitable closed-end funds that suffered similar declines. Sahlstrom and Morgan Stanley failed to adequately disclose to the client the enormous risks associated with the Third Avenue Focused Credit Fund and other high risk funds they recommended and sold to her. Additionally, it is alleged that Sahlstrom discouraged the client from withdrawing funds from her Morgan Stanley accounts and recommended the client instead take out a Morgan Stanley credit line. It is alleged that Sahlstrom touted that Morgan Stanley could offer a superior interest rate and presented the credit line as a superior option. Based upon Sahlstrom’s recommendation, the client took out a Morgan Stanley credit line to fund a small business.
The Morgan Stanley credit line Sahlstrom recommended was secured by the assets in the client’s non-retirement accounts Sahlstrom failed to adequately disclose the risks associated with the use of leverage in connection with a portfolio that was heavily concentrated in high risk investments from the volatile energy sector and other high-risk investments.
It is alleged that Morgan Stanley failed to recommend an adequately diversified and suitable portfolio for the client. Morgan Stanley failed to disclose the significant risks inherent to Sahlstrom’s unsuitable strategy, which deprived the client of her fundamental right to make informed decisions about their irreplaceable retirement savings.
In fact, it is alleged that Sahlstrom repeatedly reassured the client that she should pay no attention to fluctuations in the value of her investments because her investments would continue to pay a steady dividend and her capital would be preserved.
Unfortunately for the Erez Law client, she suffered losses to her irreplaceable retirement savings based on the recommendations of Morgan Stanley and Sahlstrom.
Sahlstrom has been registered with RBC Capital Markets, LLC in Minneapolis, Minnesota since 2016 and was previously registered with Morgan Stanley in Minneapolis, Minnesota from 2009 to 2016.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.
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