Closing Bells and Whistles: Accusations of Churning Emerge Within Morgan Stanley Smith Barney

September 14, 2012

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An intriguing new instance of whistleblowing has emerged from Clifford Jagodzinski, an ex-employee of Morgan Stanley Smith Barney LLC who claims that at least one highly successful broker for the firm was churning preferred securities in 2011. Churning in this case would violate not only state law, but also rules in place under the Dodd-Frank Act. For a further definition of churning, visit the Investors section of our company website. The Whistleblowers section of the site additionally identifies the nature of such cases and the firm's unique interest in them.

The accused broker, wealth manager Harvey Kadden, was allegedly making tens of thousands of dollars in commissions despite supposedly taking actions which created minimal advances or even losses for his clients. Mr. Jagodzinski claims these moves "were obviously designed to bilk customers". Mr. Kadden is said to have been recruited from Bank of America/Merrill Lynch, where he had worked for 30 years to great success, often appearing in Barron's list of the Top 100 Financial Advisors.

Jagodzinski claims he was told to stop investigating Kadden by higher-ups within Morgan Stanley. Kadden is reported to have run a team of four brokers who had brought $14 million in profits to the company within the last 12 months, while managing a total of over $1 billion in customer portfolios.

Expectations for Kadden were said to have run high. Despite pressure from some within Morgan Stanley to drop the case, Jagodzinski's complaint allegedly cites his reported supervising managers David Turetzky and Ben Firestein as disingenuously appreciative to Jagodzinski for having Kadden's alleged "flipping [of] these preferreds".

Turetsky allegedly discouraged Jagodzinski from bringing legal action against a different broker - within Morgan Stanley but separate from Kadden - who claimed to have made as many as eighty unauthorized trades when Jagodzinski informed the broker that he had found one such instance in his research into company fraud. Jagodzinski's claim argues that Turetzky feared firing the broker would cause the company to be leveled with unwanted fines and penalties, and do harm to the broker, whom he is said to have considered a fair and decent employee.

Jagodzinski was allegedly fired in April of this year after having reported several breaches of the law to Turetzky since December of 2011. The range of such alleged violations includes alleged failure to register home offices as work locations, improper trading, and even drug abuse. Jagodzinski is said to have been fired just ten days after initially suggesting to Turetzky that the offenses in question be reported.

It is the right of any and all professionals and investors alike who believe they may have suffered losses as a result of engaging in whistleblowing actions to contact our offices to explore their legal rights and options. If you or a family member feels they have been unjustly fired or persecuted for whistleblowing activities, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.