Erez Law Files Claim Against Morgan Stanley and Broker Sean Righter

Current investigation by Erez Law on Morgan Stanley and Broker Sean Righter.
Erez Law recently filed a FINRA arbitration against Morgan Stanley.
Their customer alleges investment losses due to recommendations by Morgan Stanley broker Sean Righter (CRD#5419832).
Sean Righter has been a registered representative of Morgan Stanley in Irvine, California, since 2009.
The Erez Law clients, a married couple, allege the following in the newly filed FINRA claim:
Erez Law alleges that the couple worked and saved diligently for years to retire with financial security.  The couple informed Morgan Stanley that they were nearing retirement, had limited investment experience and understanding, and were interested in investing their irreplaceable retirement savings in relatively low- to moderate-risk investments that would preserve their savings, generate a modest level of income, and provide a modest degree of growth over time. They were not interested in high-risk or speculative securities or strategies. He acknowledged the couple’s low-risk tolerance when he represented to them that their portfolio was a “reasonably conservative portfolio.” The couple, in turn, decided to entrust Michael Myers and Morgan Stanley with their retirement savings. By mid-2020, Michael Myers retired and Sean Righter replaced him as the couple’s financial advisor. It is alleged that Sean Righter immediately began to implement an aggressive, reckless, and unsuitable strategy that was not in the couple’s best interest.

What is alleged of broker Sean Righter and Morgan Stanley?

According to the claim, Sean Righter and Morgan Stanley recommended they gamble their retirement savings on highly speculative and unsuitable investments and strategies, resulting in very significant and completely avoidable losses.
It is alleged that Sean Righter implemented a reckless and unsuitable strategy of dangerously over-concentrating the couple’s retirement savings in ARK Exchange Traded Funds (ETFs) and separately managed accounts (SMAs), including:

Sean Righter recommended that the couple invest through Morgan Stanley’s Select UMA (unified managed account) Program. The Select UMA Program allows Morgan Stanley clients to invest the assets in one account in various investment products including SMAs, which are professionally managed portfolios by third-party managers that involve a specific strategy or style for a fee.
Beginning in January 2021, Sean Righter recommended that the couple invest in several additional speculative stocks in the couple’s consulting group account, which is an account is an investment advisory account wherein Morgan Stanley charges a fee for services instead of a transaction-based commission for its services.

The additional investments, which were held in ARK ETFs and ARK SMAs, needly increased their exposure to these and other high-risk stocks, included:

• Nutanix
• Pacific Bioscience
• Teladoc
• Twist Bioscience

Erez Law alleges that Sean Righter recklessly concentrated the couple’s 401K account in two SMAs managed by ARK–ARK Disruptive Innovative Strategy and ARK Genomic Revolution Strategy. According to the claim, Sean Righter allocated as much as 28% in ARK Disruptive Innovative Strategy and 30% in ARK Genomics Revolution Strategy. These are reckless and unsuitable concentrations on their own. He invested as much as 58% of the couple’s 401k in the two ARK strategies in 2021 and 2022.

The ARK SMAs and ETFs were so speculative that they held significant stakes in Bitcoin and other speculative and unproven or unprofitable companies such as Robinhood, Coinbase, DraftKings, and Exact Sciences.

It is alleged that he did not seek the couple’s prior authorization prior to changing their allocation to the two ARK SMAs. He steadily increased the allocation to the ARK Disruptive Innovation Strategy and the ARK Genomic  Revolution Strategy without obtaining the couple’s prior approval. If he failed to obtain written discretionary authority from the couple, then these changes in allocation are deemed to be unauthorized. It is alleged that Sean Righter implemented a dangerously over-concentrated strategy in speculative and unsuitable ARK strategies.

What Investment Strategy Was the Stockbroker Recommending?

According to the claim, by drastically concentrating the couple’s irreplaceable retirement savings in individual high-risk ARK strategies or the combined concentration in ARK Strategies and ETFs, he significantly increased the level of risk to which they were unknowingly exposed. The ARK strategies and ETFs are speculative on their own. When combined with other similar ARK strategies and ETFs to represent a majority of the couple’s retirement savings, the level of risk was drastically increased. He failed to adequately disclose the staggering level of risk to which the couple was exposed due to his ARK-focused strategy. He consistently assured them that by following his recommendations, they would certainly achieve their long-term investment goals. By the time he realized the error of his ways in late 2022, it was too little and too late.

The couple had sufficient retirement savings and did not need to take undue risk to attempt to achieve higher returns. In fact, they had communicated this to Sean Righter many times to no avail.

According to the claim, he repeatedly assured the couple that the strategy he implemented was appropriate and would achieve significant gains. He represented to the couple that all the investments they owned were high quality. When the couple expressed concerns about their mounting losses on multiple occasions, he advised them to “not to look at their accounts,” to “not listen to the noise,” and assured them they would be happy with the returns soon. He also represented to them that “The managers I use consistently outperform their index over time, they manage billions we need to let them do their job.” Regrettably, the couple followed his recommendations to their severe detriment. The ARK SMAs and ARK ETFs sustained massive losses in 2021 and 2022 in the couple’s accounts.

He allegedly recommended the couple invest their retirement savings in Tesla. Tesla was a high-risk, volatile, and unsuitable investment for the couple. There was no reasonable basis to recommend Tesla to two elderly retirees. This unsuitable over-concentrated position in a high-risk and volatile stock only further ratcheted up the level of risk to which the couple was exposed. According to the claim, he even instructed the couple to disregard Morgan Stanley’s low research opinion of Tesla and its advice to lower their Tesla holdings.

What Should Financial Advisors Do?

Firms and financial advisors such as Morgan Stanley and Sean Righter who charge an investment advisory fee on an ongoing basis (as opposed to transaction-based  commissions) are deemed to be acting as investment advisers under the Investment Advisers of 1940, which creates a heightened legal duty known as a “fiduciary duty.” As a result, Morgan Stanley and its employees, including Sean Righter, are encumbered with certain explicit legal obligations. In addition, he was obligated at all times to act in the best interest of the couple, which as detailed herein, he failed to do.
According to the claim, he caused severe financial harm to the couple and admitted the ARK SMAs and ETFs were unsuitable. In October 2022, he called the couple and in a complete reversal against all of his prior recommendations and representations, recommended that the couple liquidate their investments and invest the proceeds in fixed-income investments, such as treasuries and bonds. It is alleged that his recommendation to close the ARK SMAs and sell the ARK ETFs is nothing short of a complete admission that these investments were never suitable for the couple. Shortly thereafter, the couple terminated their relationship with him and Morgan Stanley.

The couple realized losses in the couple’s 410K account, including the following stock in ARK SMAs:

His unsuitable strategy allegedly exposed them to more risk and lesser returns than the market. Morgan Stanley must be held liable for Righter’s egregious conduct and failure to supervise him.

How to File a Claim Against Broker Sean Righter and Morgan Stanley

Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If you 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.