Morgan Stanley ‘Expense Queen’ Barred But Her Legacy Survives
A former broker who has been permanently barred from the securities industry over fictional expense reports may still be enjoying the connubial benefits of books built over her 20-year industry career.
Tracy Chen was fired by Morgan Stanley in May 2013 and was “permitted to resign” by Oppenheimer & Co. this February as her bar by the Financial Industry Regulatory Authority became effective. The southern California-based broker converted Morgan Stanley’s funds to her own use, “causing Morgan Stanley’s books and records to be inaccurate,” according to Finra’s BrokerCheck database.
As accusations alleging exploitation of a Morgan Stanley expense account perquisite began mounting, Chen did her homework and brought her husband, John Yarmoski, into the business. Yarmoski registered with Finra and began working at Oppenheimer in August 2014. He left Opco a month ago when his wife “resigned,” and is now a broker at a Stifel Financial branch in Newport Beach.
Yarmoski, who has no client or regulatory complaints on his BrokerCheck record, said his move has been “successful” to date in terms of client account transfers, but declined to comment on Chen or whether he is working with any of her former clients.
“I’m sorry,” he said in a phone call. “I don’t really want to chat about that kind of stuff.”
A spokesman for Stifel declined to comment. A Finra spokeswoman was not immediately able to comment.
A spokeswoman for Oppenheimer declined to comment on questions about its hiring of the couple following Chen’s dismissal from Morgan Stanley. Chen could not be reached.
According to Finra, Chen was producing around $900,000 and earning $440,000 as she exploited Morgan Stanley’s Automated Flexible Grid (AFG) perquisite. The program allows brokers to deduct money annually from their pretax earnings if used within the upcoming year for client entertainment and other business expenses.
Chen allocated 10% of her 2013 salary to the program, the largest of all brokers in her Brea, Calif., branch and five times the percentage chosen by most of them, according to testimony from her branch manager, Justin Frame. After questioning her about her bountiful allocation he concluded it was reasonable “considering her plans for the upcoming year, and her ‘very very active’ approach to business development,” according to Finra’s complaint.
For 17 months, Chen falsely expensed hundreds of bracelets, serving platters, decorative candles and other client gifts that she ordered online from Nordstrom’s and other retailers before canceling all the orders, according to Finra’s enforcement ruling. She received $28,435 of the $38,539 she had sought in reimbursement before the alleged scheme was discovered, according to Finra’s complaint.
In her testimony before Finra, Chen said she believed Morgan Stanley wanted her to collect an additional $1,600 under cover of the expense reimbursement to help offset a company-induced technology error that caused her to lose a million-dollar client.
Chen, who has had only one recorded customer complaint over her 21-year career, admitted to filing false expense reports but testified to Finra that she was entitled to use the money as she saw fit because it came from her earnings. The customer complaint, which alleged excessive commissions and unauthorized trading in 2001, was denied when the customer did not press the claims, according to Chen’s BrokerCheck database profile.
Finra’s enforcement panel found her testimony “transparently self-serving, contradictory, and inconsistent,” according to the ruling. “At several points during the hearing, Chen revealed a sense of entitlement and disregard for the rules governing brokers’ conduct,” the panel wrote.
“This is evidence that we don’t tolerate financial advisors attempting to abuse expense accounts, and that we will pursue disciplinary actions,” a Morgan Stanley official told k-tcc.