An author of more than two dozen books on spies and espionage alleges that his former Morgan Stanley adviser deceived him for years about what was really in his accounts, according to a copy of a recent FINRA arbitration award.
Last week, a panel of three arbitrators found that adviser Kim Dee Isaacson had lied to his client, H. Keith Melton, about the investments and account balances in Melton's portfolio, according to a copy of the award.
The arbitrators ruled that Morgan Stanley was liable for failing to properly supervise Isaacson, and ordered the wirehouse to pay Melton about $3.6 million, though the amount fell short of the roughly $10 million that Melton sought for negligence, breach of fiduciary duty and other misconduct, according to the award.
A Morgan Stanley spokeswoman says the firm disagrees with the award. "We are disappointed by the decision and do not believe it is supported by the facts."
Isaacson, who now works at Ameriprise in Midvale, Utah, declined to comment on the case.
ALLEGED MISREPRESENTATION
Melton relied on Isaacson's oral reports rather than written account statements, according to the award. He had known Isaacson for 20 years, but the alleged period of misconduct was from approximately 2010 to 2014, according to Melton's attorney, Andrew Mytelka, a partner at Greer, Herz & Adams, a Galveston, Texas-based law firm.
Mytelka says that when Melton moved his accounts over to Morgan Stanley, the firm was in growth mode and in the midst of its merger with Smith Barney.
"Their growth outpaced their supervision. This guy [Isaacson] took advantage of this and had been lying for years about what the account balances were," Mytelka says. Melton’s investments included stock in Petrobas, the Brazilian oil company, according to the award.
Mytelka says that Isaacson had "confessed before the arbitration" and that Melton had the confession on tape.
Mytelka adds that his client moved his accounts to another brokerage account when he discovered the alleged fraud.
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Melton filed his claim in arbitration in March 2014, according to a copy of the award. The arbitrators ordered Morgan Stanley to pay Melton almost $1 million for disgorgement of brokerage fees and commissions and almost $2.6 million to represent the difference between the actual account balance and the value verbally reported to Melton by Isaacson.
The panel, which was based in Boca Raton, conducted 24 hearings at a cost of $28,800, which it assigned to Morgan Stanley and Isaacson.
"Brokerages should be more careful who they hire and supervise," Mytelka says.
Isaacson voluntarily resigned from Morgan Stanley in February 2014, according to his FINRA BrokerCheck record.
A note on his BrokerCheck record says that FINRA is investigating whether he violated the regulator's rules regarding verbal misrepresentations about a client's account values and performance.
A spokeswoman for the regulator declined to comment.
A spokeswoman for Ameriprise, where Isaacson currently works, also declined to comment.
The arbitrators also ruled that two other advisers named in the arbitration, Paul William Shoemaker and Amie T. Thompson, did not participate in the alleged fraud, and ordered their BrokerCheck records expunged. A fourth adviser Quin J. Gardner, reached a settlement with Melton, who withdrew his claims against Gardner, according to a copy of the award.
