The Securities Arbitration Law Firm of Klayman & Toskes (“K&T”), www.nasd-law.com, announced today that it filed a claim against Morgan Stanley Smith Barney (“Smith Barney”) on behalf of a UPS (NYSE: UPS) employee for losses sustained as a result of maintaining a concentrated, leveraged position in UPS stock. The suit was filed with FINRA’s arbitration department, and seeks damages of $2,000,000.
According to the Claim, the Claimant worked over 23 years with UPS and accumulated shares of the company through UPS’ Employee Stock Purchase Plan and Managers Incentive Program, which represented virtually his entire life savings. The Claimant opened a Hypothecation Loan (“hypo loan”) whereby the UPS stock served as collateral. In opening an account with Smith Barney, Claimant’s hypo loan was converted to a margin loan through Smith Barney. While Smith Barney loaned Claimant money using his UPS stock as collateral, Smith Barney failed to recommend a collar and/or protective put option as a risk management strategy to protect Claimant’s concentrated position in UPS stock. A collar and/or protective put option would have prevented a collateral call on the loan when the UPS stock substantially declined below the loan-to-value-ratio. Having the UPS stock collared would have increased the borrowing power in Claimant’s account allowing him to borrow 90% of the protective put option of the collar. However, Smith Barney, looking to make money on the loan, facilitated the unsuitable investment strategy of borrowing against a concentrated stock position without a collar and/or protective put option in place. By failing to protect the concentrated position and/or recommend risk management strategies, Claimant received margin calls which triggered the sale of his UPS stock. This case is about the failure of Smith Barney to collar and/or protect Claimant’s UPS stock which represented a large portion of his life savings. As a direct result of Smith Barney’s negligence, Claimant lost his life savings and filed for Chapter 7 bankruptcy.