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Recent Customer Disputes Raise Concerns About Investment Practices
Stephen Robert Marotto (CRD# 5473140), a broker currently registered with Morgan Stanley in San Francisco, California, has become the subject of customer disputes alleging serious misconduct. Investors who have worked with Mr. Marotto and experienced unexpected losses should be aware of their rights and potential recovery options.
According to his FINRA BrokerCheck report, Marotto faces allegations including misrepresentation, unauthorized trading, and suitability issues. These allegations raise significant red flags for investors who have entrusted their financial future to this financial professional.
Who Is Stephen Robert Marotto?
Stephen Robert Marotto is a registered broker and investment adviser currently employed by Morgan Stanley. He operates from the firm’s San Francisco office located at 555 California Street in their Private Wealth Management division. Prior to joining Morgan Stanley in April 2023, Marotto worked at:
- First Republic Investment Management, Inc. (February 2014 – May 2023)
- First Republic Securities Company, LLC (January 2013 – May 2023)
- First Republic Wealth Advisors as an Associate (January 2008 – April 2017)
Marotto holds a Chartered Financial Analyst (CFA) designation and has passed the Series 7 (General Securities Representative) and Series 63 (Uniform Securities Agent State Law) examinations. He is currently registered in 53 U.S. states and territories and with four self-regulatory organizations.
Customer Complaints Against Stephen Marotto
The FINRA BrokerCheck report reveals concerning disclosure events in Marotto’s history:
Pending Customer Dispute (December 2024)
A customer has filed a complaint alleging:
- Misrepresentation of investment details and potential risks
- Unauthorized trading without proper client approval
- Suitability violations regarding inappropriate investment recommendations
This complaint involves a managed account with alleged damages of $550,049.00. The reported activity dates span from January 1, 2019, to June 9, 2023, during Marotto’s employment with JP Morgan Securities LLC.
Previous Customer Dispute (January 2018)
A previous complaint alleged that Marotto failed to follow instructions to liquidate an account in August 2015, resulting in claimed damages of $220,000. While this complaint was denied by the firm, it establishes a potential pattern of similar allegations regarding account management.
According to the broker’s statement on this matter, “In August 2015, the client contacted his investment advisor to discuss market volatility. After the discussion, the client chose to continue his investment strategy. The client did not provide an instruction to liquidate, and the account decline a week later. Client submitted his complaint over 2 years later in 2017, while in the process of closing the account.”
Red Flags for Investors
The allegations against Stephen Marotto highlight several investment practice concerns that investors should be vigilant about:
1. Misrepresentation
Misrepresentation occurs when a broker provides false or misleading information about investments. This can include:
- Overstating potential returns by presenting “best case” scenarios as likely outcomes
- Minimizing or concealing risks that would impact investment decisions
- Making unwarranted guarantees about performance
- Failing to disclose material facts about investments, such as liquidity restrictions
- Presenting hypothetical or back-tested performance as actual results
- Obscuring fee structures and their impact on net returns
Misrepresentation violates FINRA Rule 2210, which governs communications with the public, and constitutes a serious breach of the broker’s duty of fair dealing.
2. Unauthorized Trading
Unauthorized trading happens when a broker executes transactions without proper client approval. This violation:
- Breaches the fiduciary duty to act in the client’s best interest
- Potentially exposes clients to unwanted risks or tax consequences
- Often results in excessive commissions for the broker
- Violates FINRA Rule 2010 on standards of commercial honor
- May indicate a broker is attempting to boost fees through frequent trading
- Creates unexpected portfolio changes that disrupt financial planning
Even in discretionary accounts, brokers must adhere to the investment parameters and objectives established by the client.
3. Suitability Concerns
Investment recommendations must be suitable for each client’s specific financial situation. FINRA Rule 2111 explicitly requires this suitability analysis. Unsuitable recommendations may:
- Disregard the client’s stated risk tolerance for more aggressive approaches
- Ignore documented investment objectives in favor of higher commission products
- Fail to consider the client’s age, financial situation, and liquidity needs
- Create inappropriate portfolio concentration in specific sectors or securities
- Recommend complex products without adequate explanation of risks
Understanding Managed Account Misconduct
Both complaints against Marotto involve managed accounts, a popular investment vehicle where financial advisors have discretionary authority. While convenient, managed accounts require vigilant oversight as they can be vehicles for:
- Excessive trading to generate commissions (churning)
- Implementation of unsuitable investment strategies
- Misrepresentation of portfolio performance
- Deviation from agreed-upon investment objectives
- Window dressing before reporting periods
- Fee layering that erodes returns over time
Warning Signs of Managed Account Abuse
Investors with managed accounts should remain vigilant for these warning signs:
- Significant deviation from benchmark performance without clear explanation
- Regularly receiving trade confirmations for securities you don’t recognize
- High turnover in traditionally stable investment categories
- Performance that doesn’t align with market conditions
- Unexpected tax consequences from frequent trading activity
Broker Transition Red Flags
Marotto’s recent move from First Republic to Morgan Stanley in April 2023 following the JP Morgan acquisition merits attention. While broker transitions are common, they can sometimes be prompted by:
- Increasing regulatory scrutiny at the previous firm
- Customer complaints at the previous firm that haven’t yet appeared on regulatory records
- Attempts to escape oversight of problematic practices
- Financial incentives that may not align with client interests
- Pressure to meet sales targets or cross-sell products at the previous firm
Steps for Concerned Investors
If you’ve invested with Stephen Robert Marotto and have concerns about your account management, consider these important steps:
1. Review Your Account Statements
Carefully examine your investment statements for:
- Unauthorized transactions you don’t recall approving
- Unexpected losses disproportionate to market conditions
- High-fee products that weren’t fully explained
- Excessive trading activity (frequent buying and selling)
- Deviation from agreed-upon strategies
2. Request All Account Documentation
Maintain copies of:
- Account opening documents that establish your initial investment objectives
- Investment objectives forms and updates showing your risk tolerance
- Risk tolerance questionnaires
- All written communication with your broker, including emails, texts, and letters
- Complete account statements from the entire relationship period
- Trade confirmations for all transactions in the account
3. Consult with a Securities Attorney
A specialized securities attorney can:
- Evaluate potential claims based on the specific facts of your situation
- Assess recovery options through FINRA arbitration or other means
- Guide you through the FINRA arbitration process
- Help quantify damages using accepted industry methodologies
- Identify all potential respondents who may bear responsibility
Many securities attorneys offer free initial consultations to evaluate the merits of your case.
4. Understand the FINRA Arbitration Process
The Financial Industry Regulatory Authority (FINRA) provides the primary forum for resolving securities disputes:
- FINRA arbitration typically moves faster than traditional court cases, often concluding within 12-18 months
- The process allows for recovery of investment losses and potentially other damages
- Provides a specialized forum with arbitrators familiar with securities regulations
- Has strict deadlines for filing claims based on when the conduct occurred or was discovered
Potential Recovery Options
Investors who have suffered losses due to broker misconduct may be entitled to several forms of recovery:
1. Actual Damages
- Direct investment losses
- Lost opportunity costs
- Account fees and commissions
2. Rescission
- Return of the original investment
- Cancellation of transactions
- Restoration to the previous financial position
3. Costs and Fees
- Attorney fees
- FINRA filing fees
- Expert witness costs
Morgan Stanley’s Supervisory Responsibilities
Brokerage firms like Morgan Stanley have a legal obligation to supervise their brokers. If Marotto engaged in misconduct, Morgan Stanley could be liable for:
- Failure to adequately supervise the broker’s day-to-day activities
- Negligent hiring or retention if they failed to properly investigate his background
- Failure to enforce compliance procedures designed to prevent customer harm
- Inadequate systems to detect misconduct such as unauthorized trading or churning
- Failure to act on red flags that could indicate problematic behavior
Under the legal principle of respondeat superior (“let the master answer”), brokerage firms can be held liable for the actions of their employees conducted within the scope of employment.
Protecting Yourself Moving Forward
To protect your investments from similar situations:
- Research broker backgrounds using FINRA BrokerCheck before establishing relationships
- Document all communications with financial advisors
- Review account statements promptly and question unusual activity
- Get investment recommendations in writing with clear explanation of risks
- Maintain a diversified portfolio to minimize concentration risk
Conclusion
Investment losses due to broker misconduct can be devastating, particularly for retirees or those nearing retirement. Understanding your rights and taking prompt action are essential to protecting your financial future.
The investment industry is built on trust, but that trust must be reinforced with vigilance, documentation, and a clear understanding of your rights as an investor. The regulatory framework provided by FINRA and the SEC offers meaningful protections, but only if investors recognize potential misconduct and take prompt action to address it.
If you’ve worked with Stephen Robert Marotto at Morgan Stanley, First Republic, or JP Morgan and have concerns about your investment management, don’t hesitate to seek professional guidance. Our firm’s dedicated team of investment fraud attorneys has the specialized knowledge and experience to help you understand your legal options and pursue appropriate remedies.
Call 800-950-6553 or complete our online form to schedule your no-obligation case evaluation.
Disclaimer: This content is attorney advertising and should not be considered legal advice. Each case is unique and past results do not guarantee future outcomes. All allegations against Stephen Robert Marotto are drawn from his FINRA BrokerCheck report and have not been proven in a court of law or FINRA arbitration. Mr. Marotto is presumed innocent of any wrongdoing unless and until proven otherwise.
