Stoltmann Law Offices is a Chicago-based securities and investor rights law firm dedicated to a nationwide practice to recover money lost by investors as a result of the misconduct of financial advisors and their brokerage and investment firms. We have prosecuted at least one hundred cases over the years against Morgan Stanley and were not surprised to learn about David Todd Levine and his being barred by FINRA, the State of Colorado, and the Securities and Exchange Commission. These bars were “by consent” meaning none of the allegations made against Mr. Levine were proven. It just means instead of fighting them, Mr. Levine will instead never be able to legally provide investment advice to anyone for the rest of his life.
According to an Order Instituting Administrative Proceedings (OIP) filed by the SEC, which parroted claims made by the Colorado Securities Commissioner, Mr. Levine recommended that clients invest in a Bitcoin investment being run by his brother. In so doing, Mr. Levine allegedly failed to disclose that his brother was a fugitive from the law in the United States, living abroad. The Commission further alleged that Mr. Levine failed to disclose this criminal history to any of his clients and further failed to verify the legitimacy and ownership of the Bitcoin that was apparently part of this investment scheme. The SEC also alleged that Mr. Levine failed to develop a method for ensuring the transfer of funds and Bitcoin, which allowed his brother to steal $1.5 million. Levine also allegedly failed to disclose the high risk nature of this investment scheme. If you are a victim of Mr. Levine’s alleged Bitcoin scam, and you were a client of his and Morgan Stanley, you could have a viable claim to pursue against Morgan Stanley.
Although it is alleged that Levine failed to disclose this investment and his involvement in it to Morgan Stanley, that does not automatically release Morgan Stanley from potential liability. Whether Morgan Stanley can be found liable by FINRA arbitrators depends on two issues regardless of disclosure by Levine. 1) Were there sufficient red flags that Levine was soliciting his clients to invest in this Bitcoin investment so has to put Morgan Stanley on constructive notice of it? 2) Were clients reasonable to believe that Levine was acting within the course and scope of his employment with Morgan Stanley in recommending an investment in a Bitcoin related deal? Typically, advisors leave enough of a paper trail behind them that reasonable supervision and compliance should discovery this sort of outside activity. Levine was offering it to Morgan Stanley clients after all, so a few phone calls by Morgan Stanley and they would have uncovered what was happening. Moreover, investors would certainly be reasonable in assuming what Levine was doing was legitimate and was through or at least tacitly approved by Morgan Stanley. This “apparent agency” issue could make Morgan Stanley liable for your losses. Courts agree. See McGraw v. Wachovia Securities, 856 F. Supp. 2d 1053 (N.D. Iowa 2010).