Broker's insider-trading woes may hurt Morgan Stanley, Oppenheimer

Fri Mar 28, 2014 11:16am EDT
 
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By Jed Horowitz

NEW YORK (Reuters) - Vladimir Eydelman, the former Morgan Stanley and Oppenheimer Holdings broker arrested on insider trading charges last week, could expose some former clients and the firms to regulatory and legal actions, lawyers and securities industry veterans said.

Eydelman, who was charged with fraud on March 19 by the U.S. Securities and Exchange Commission and the Justice Department, allegedly made more than $5.6 million in illicit profit over three-and-a-half years for himself, friends and more than 50 clients, by trading stocks and options of companies involved in undisclosed merger deals and tender offers that were leaked by a law-firm employee.

The cloak-and-dagger details of the insider operation - including how a middleman swallowed Post-It notes scribbled with ticker symbols to be traded - made headlines.

Still, it's the more mundane details such as due diligence in hiring that could choke Oppenheimer OPY.N and Morgan Stanley (MS.N: Quote) if regulators extend their investigations, lawyers said.

The Financial Industry Regulatory Authority (FINRA) has said that examining procedures at brokerage firms for weeding out the bad apples is one of its priorities this year.

Eydelman, 42, had a history of job-hopping, a record of customer complaints and an apparent burst of productivity in recent years, according to the lawsuits and FINRA filings.

Though he settled down more recently to work at just two firms over the last 13 years - he was at Oppenheimer for almost ten years before moving to Morgan Stanley in September 2012 - the lawsuits abound with examples of areas where Eydelman apparently evaded compliance overseers.

In one example, Eydelman - who had discretion to trade in many of his clients' accounts - told an informer that in order to obtain such discretion he had forged the name of one Oppenheimer customer, who later complained to the firm about account losses, according to the SEC complaint.   Continued...

 
The corporate logo of financial firm Morgan Stanley is pictured on a building in San Diego, California September 24, 2013. REUTERS/Mike Blake