Weekend Economists Volvemos a Puerto Rico May 22-25, 2015

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28. Morgan Stanley wealth manager who had an affair with a client could cost the bank $400 million

http://www.businessinsider.com/wealth-manager-affair-suit-could-cost-400m-2015-5

A high-flying Morgan Stanley investment adviser, Ami Forte, has the bank facing an enormous fine, a source says. The fine would be the result of a lawsuit filed against the bank by the widow of a multimillionaire client. The widow is Lynnda Speer, who was married to Roy Speer, cofounder of the Home Shopping Network. He died in 2012. Now Lynnda Speer says the bank overcharged her husband while he was alive.

To complicate matters, there is this: Roy Speer and Forte were having an affair. It started in 1998. Details of the affair came out in a Financial Industry Regulatory Authority (FINRA) hearing taking place in Florida this month. A source present at the FINRA hearing says Morgan Stanley could be on the hook for a $400 million loss: $100 million in compensatory damages, and an additional $300 million in punitive damages. According to an earlier report, Morgan Stanley believed it might be on the hook for a lot less — only $170 million.

The reason the fine may end being bigger than expected is because of a state statute in Florida, the Florida Elder Exploitation Law. The law allows for punitive damages for exploitation of the elderly. Toward the end of his life, Speer suffered from declining mental and physical health, requiring him to delegate oversight over financial matters to others, including Forte.

"During the last several years of his life, Roy Speer suffered from significant diminished mental capacity, as well as from substantial physical infirmities,” said a representative from Johnson Pope Bokor Ruppel & Burns LLP, lawyers for Lynnda Speer. "He was wheelchair bound and diapered, could not drive, and was attended to daily by a full-time caregiver.”

Lynnda Speer’s lawyers say that from March 2007 until after Speer’s death in 2012, Morgan Stanley, through Forte, allegedly “put through approximately 12,000 unauthorized trades in Mr. Speer’s accounts, generating commissions of nearly $40 million,” according to the law firm’s statement, which was provided to Business Insider. Lynnda Speer’s lawyers declined to make her available for comment.

“We believe the claims are without merit and we are contesting them vigorously through the legal process,” a Morgan Stanley representative said in a statement.

Ami Forte oversaw between $155 million and $185 million of Roy Speer’s money and assets while he was alive, says a source who attended the FINRA hearing, which is yet to conclude. Business Insider sought Forte for comment, and she did not respond. At Morgan Stanley, according to her bio, “Ami is one of the few female members of Morgan Stanley’s Chairman’s Club, qualifying consistently since 2001.” Morgan Stanley’s Chairman’s Club is reserved for its top wealth-management advisers. Forte also made the grade in investment publication Barron’s, which named her among its top-100 financial advisers several times. She racked up other accomplishments as well.

A source says that while Lynnda Speer was aware of her husband’s dalliances, she neither approved — nor was willing to divorce him. According to a source present in the hearing, it was acknowledged that Forte “had a unique relationship with Mr. Speer.” The source added: "It was well known in the community that they were having an affair.”