This article was originally published by AdvisorHub.com
The Financial Industry Regulatory Authority suspended a former Morgan Stanley broker in Birmingham, Mich., for seven months and fined him $10,000 for failing to fully disclose his involvement in two fantasy sports start-ups.
Jeffrey M. Johnson and one of his Morgan Stanley clients raised $310,000 from eleven investors, four of whom were clients, for the online firms Teaser Fever and FourPlay Sports that they co-founded, according to a consent letter signed last week.
By failing to fully disclose the activities to the firm, Johnson violated Finra Rule 3270, which prohibits unapproved outside business activities and which the regulator is reviewing after years of complaints from securities industry members about its complexity and lack of clarity.
Johnson, who also consented to a finding that he violated the self-regulator’s Rule 2010 requiring brokers to “observe high standards of commercial honor,” accepted the penalties without admitting or denying the findings.
Mark Kowalsky a lawyer in Southfield, Mich. who represented Johnson, did not return a request for comment.
Morgan Stanley terminated Johnson for issues involving “servicing of a client’s managed account” in February 2016, four years after he had joined the firm from a Raymond James & Associates office in the affluent Detroit suburb, according to his BrokerCheck history. In investigating the managed-account issue, the firm uncovered evidence of his fund-raising for the betting sites, according to the waiver and consent agreement he signed.
Johnson, who is not currently registered with a Finra member, did not respond to requests for comment. He characterizes himself on his LinkedIn profile as a portfolio manager for The Yellowstone Fund, which he describes as an entity that buys debt of small businesses.
Johnson actually received approval from Morgan Stanley to participate in the still-active FourPlay Sports venture (after the firm first rejected it), but stumbled by failing to disclose his ownership stake in it or his fund-raising among customers, according to the waiver and consent agreement. He did not disclose the Teaser Fever business.
Johnson’s BrokerCheck history records one customer complaint in his seven years as a registered representative, charging a pattern of unsuitability, breach of fiduciary duty and negligence from 2009 through May of 2014. The customer requested $25,000, but Johnson settled it for $7,000, according to the report.