Morgan Stanley Loses $843,000 Investor Claim Stemming from ‘Gold Bar’ Scam

Marjorie Kessler, 76, claimed last year that Morgan Stanley violated two industry rules and “long-standing” industry standards designed to protect elderly clients, according to her statement of claim, which alleged she had been defrauded of $1.75 million, not by the firm, but outside fraudsters targeting her wealth.

The dispute was decided on Monday by a three-person panel under the aegis of Finra Dispute Resolution Services.

“This is going to be an emerging trend in the broker-dealer industry and Wall Street, as more elderly people will be victimized like this,” said Lloyd Schwed, Kessler’s attorney, in an interview Tuesday. “The B-Ds are [the] first line of defense.”

According to the complaint, the online fraudsters eventually accessed Kessler’s bank account at another firm, bought gold bullion bars worth more than $1.6 million, which were delivered by UPS to her Florida condominium.

The scam artists told her to pack the gold bars in boxes and deliver them to a government courier who would meet her outside her condominium security gates and then deposit them in her escrow account in Washington D.C., according to the complaint.

Morgan Stanley fell short in following the industry’s “trusted contact” standard, which identifies a person for the firm to call in certain circumstances, according to the client’s claim, as well as the financial exploitation of senior citizens rule. The latter allows broker-dealers to put a temporary hold on client transactions or disbursement of funds.

Morgan Stanley wanted the claim dismissed, according to the arbitration award.

“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,” wrote a firm spokesperson in an email. “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.”

According to an article last year in the Washington Post, a gold bar scam occurs when fraudsters pose as federal agents and target victims online or by the phone. The scam artist tells the individual his or her account is no longer safe and then persuade them to buy gold bars and hand them over.

This is what happened to Kessler, according to her statement of claim.

“During repeated phone calls during a two-week period, the scammers convinced Ms. Kessler that, in order to protect her savings, she had to rush to convert her money into cash and gold bars to be delivered to couriers and cryptocurrency which would be deposited in a US Treasury account under her new Social Security number,” according to the statement of claim.

“Despite glaring red flags and obvious warning signs of financial exploitation, Ms. Kessler’s financial advisor authorized and facilitated Ms. Kessler’s sudden withdrawal of $2.09 million in funds from a line of credit and the liquidation of assets from a life insurance trust during a nine-day period in July and August 2023,” the claim alleges.

The financial advisor authorized the withdrawals despite the fact that Kessler specifically asked him to keep the withdrawals “secret” and not to disclose them to her son, who had been directly involved in every major decision in his mother’s investment accounts during the prior six years, according to the complaint.

While the Finra arbitrators gave no explanation for the award, Schwed, the attorney, said he thought the reasoning was simple; they gave Morgan Stanley a pass for the first transaction out of Kessler’s account, but penalized them for the second.

“If Morgan Stanley had called my client’s son, this wouldn’t have happened,” Schwed said.