An arbitration panel has ruled that Morgan Stanley must pay $1.8 million in damages to investor Karen Busch, who accused the brokerage firm of negligence and failure to supervise her advisors. Busch claimed that her advisors, who happened to be her brother-in-law and nephew, concentrated too much of her portfolio in shares of WisdomTree.
The late David Wachsman and his nephew Todd Wachsman, both affiliated with Morgan Stanley at the time, were the advisors responsible for managing Busch’s investments. David Wachsman has since passed away, while Todd Wachsman did not provide any comment regarding the case. However, neither advisor was named as a respondent in the arbitration.
In response to Busch’s allegations, Morgan Stanley denied any wrongdoing and expressed disappointment with the arbitration award. The company maintained that Busch had been duly advised multiple times about the risks associated with her concentrated investment.
According to Busch’s lawyer, Brian Neville, her advisors consistently recommended adding to the position in WisdomTree, and she followed their advice. Over a period of approximately ten years, her portfolio gradually shifted until almost 100% of her investments were allocated to WisdomTree.
Busch, a retired artist and art educator, heavily relied on her investments as her primary source of income. Therefore, her nest egg was crucial to ensuring financial security throughout her life.
Unfortunately, WisdomTree shares reached their peak at around $25 in 2015, subsequently declining significantly. Currently, the stock trades at approximately $7 per share. As Neville argued, a more diversified portfolio could have protected Busch’s investments from such a substantial loss.
It is worth noting that Busch terminated her relationship with Morgan Stanley over two years ago, prompting her to file the arbitration claim on January 26, 2021.
After numerous hearings, the three-person arbitration panel ultimately favored Busch’s side. In addition to the damages awarded to her, the panel denied Morgan Stanley’s request to expunge Busch’s complaint from the regulatory records of the Wachsmans, thereby preserving the allegations for future reference.