By Kenneth Corbin

An arbitration panel has found Morgan Stanley liable for negligence and ordered it to pay $843,000 to resolve allegations that it enabled an elderly investor to fall prey to a scam that cost her nearly $1.75 million.

The investor had claimed that a Morgan Stanley advisor didn't do enough to prevent her from making two large and unusual withdrawals from her accounts with the brokerage firm.

The client, Marjorie Kessler, a 75-year-old widow in Florida, was targeted by scammers posing as a technical support staffer, a bank staffer, and a government official who told her that her identity had been stolen and involved with child pornography activity, according to Kessler's statement of claim submitted to the arbitration panel, which was convened by brokerage industry self-regulator Finra.

The scammers told Kessler that she was facing a yearslong asset freeze and that she needed to convert her funds into cash and gold bars that would be handled by couriers and cryptocurrency that would be held in a U.S. Treasury account under a new Social Security number.

Kessler made two large withdrawals totaling nearly $2.1 million from her Morgan Stanley accounts in July and August 2023, less than two weeks apart, totaling roughly one-third of her assets held with the firm.

The dispute turns on whether the Morgan Stanley advisor should have detected red flags in Kessler's requests and attempted to deter her from executing the transactions or contacted her son, who was also a client of the advisor and was routinely involved in helping his mother manage her money. Kessler's statement of claim says she instructed the advisor to keep the requests a "secret" from her son.

Morgan Stanley claimed in its response to the allegations that Kessler, who is "incredibly sharp," had successfully managed her money since her husband's death in 2005. Morgan Stanley says Kessler told her advisor that she wanted to use the funds she was withdrawing to purchase a new condominium for herself and, in the second request, one for her daughter, who she said was going through a divorce.

In response to both requests, Morgan Stanley says its advisor asked Kessler a number of questions, but determined that her story was credible. In part, Morgan says, that was because she lied in telling the advisor that she had retained a lawyer to help with the transactions and that she would soon be depositing $2 million back into her accounts with the firm from the sale of her old condo.

"We sympathize with Ms. Kessler as the victim of a third-party fraud, but it is important to keep in mind that this fraud did not occur at Morgan Stanley," a spokeswoman says in response to the Finra award. "Further, the firm should not be held responsible for her losses as Ms. Kessler made misstatements to her financial advisor about the purpose of the transfers, and authorized them to be sent to a third-party bank account held in her name."

Kessler's lawyer, Lloyd Schwed, said that Morgan Stanley knows that scammers such as the imposters who targeted his client coach their victims to make up cover stories to secure the release or transfer of funds.

"Morgan Stanley is just trying to explain away its negligence in believing a preposterous story that a 75-year-old widow suddenly needed to borrow more than $2 million in a span of eight days to buy not one but two homes," Schwed says. "Morgan Stanley ignored multiple red flags described in its own compliance notices as warning signs of financial exploitation."

At the arbitration hearing, Kessler requested $1,744,470 plus costs of the proceeding, alleging negligence, breach of contract, and breach of fiduciary duty and duties of care owed to a senior investor. The panel's final award was slightly less than half that amount.

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February 13, 2025 14:55 ET (19:55 GMT)

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