* Three from Morgan Stanley cited
* Kodak and Xerox employees victimized (Edits first two paragraphs, adds Kazacos lawyer’s comment)
By Jonathan Stempel
NEW YORK, March 25 (Reuters) - Morgan Stanley (MS.N) will pay more than $7.2 million to settle regulatory charges that two brokers induced dozens of Eastman Kodak Co EK.N and Xerox Corp (XRX.N) workers to retire early and open accounts that cost them much of their wealth.
One of the brokers, Michael Kazacos, was permanently barred from the industry; the other, David Isabella, was charged with misconduct; their manager, Ira Miller, was suspended from acting as a principal for one year and fined $50,000, the Financial Industry Regulatory Authority said.
All three worked in a Morgan Stanley office in Rochester, New York. Kazacos and Isabella are no longer with the brokerage.
Morgan Stanley agreed to pay a $3 million fine and make more than $4.2 million of restitution to 90 former customers of Kazacos and Isabella. FINRA said Morgan Stanley previously settled with 101 of the brokers’ other customers.
“The supervisory failures of Morgan Stanley and its management led to losses suffered by customers at a vulnerable time in their lives, retirement, which could have been avoided,” FINRA enforcement chief Susan Merrill said.
FINRA accused the brokers of promising the employees they could earn returns of 10 percent or more each year, and could withdraw money for living expenses without reducing principal.
Instead, FINRA said, at least 184 customers faced “financial hardships” such as market losses, reduced principal, and an inability to withdraw what they expected. It said some needed to return to work at “greatly reduced income” to cover basic living expenses.
“Brokers promised these people they could retire from good-paying jobs and live the rest of their lives on their nest eggs,” Joseph Peiffer, who represents some of the workers in a New York state court case against Morgan Stanley, said in an interview. “They invested in a lot of products that generated high commissions for brokers, as well as risky equities. It was only a matter of time before they ran out of money.”
FINRA said Morgan Stanley, Kazacos and Miller did not admit wrongdoing but consented to the regulator’s findings. The regulator oversees close to 5,000 brokerages.
Christy Pollak, a Morgan Stanley spokeswoman, said the company has cooperated fully and has enhanced oversight since the alleged conduct took place earlier this decade.
Isabella’s lawyer, Andrew Sidman, said he was reviewing the complaint against his client. Kazacos’ lawyer, David Gourevitch, said his client retired more than two years ago and was pleased to resolve the matter. Howard Elisofon, who represents Miller, said his client was also pleased to resolve the matter.
In 2007, Citigroup Inc (C.N) agreed to pay $15.2 million to settle similar charges by a FINRA predecessor covering early retirees at BellSouth Corp. The prior year, a unit of Ameriprise Financial Inc (AMP.N) agreed to pay $16.3 million in a similar case involving Exxon Mobil Corp (XOM.N) retirees.
Citigroup and Morgan Stanley are merging their brokerages, in a transaction expected to close this summer. Morgan Stanley will have an initial 51 percent stake in the venture. (Reporting by Jonathan Stempel; Editing by Brian Moss and John Wallace)