BusinessReport.com

Alice and David Landry didn’t know what to do when they were told they’d have to go back to work.

It was shocking news considering the Landrys were in their 50s at the time, trying to absorb the stunning realization they had lost most of their $700,000 retirement money. At that point during an impromptu meeting at a local bookstore nearly four years ago, they sat speechless as their financial adviser explained how their investments were lost in a market downturn.

With hardly a word, the Port Allen couple stepped out of the store and into a hard struggle. Debt mounted until they lost their dream retirement place and had to move in with David’s mother, who later sold them her house. It was humiliating, but they say it was nothing compared to the shame they felt over believing a man who told them he’d make them millionaires.

“No one’s children should have to see what we went through,” Alice recalls.

“We’re back where we started,” David laments. But he quickly adds they are still strong in their beliefs, and every dollar they make these days is another triumph no matter how small. They eat more hamburgers than they used to, but they’re grateful to still be eating after David eventually found work with a local contractor.

What happened was difficult for them to discuss because they felt shamed until they spotted a newspaper ad in November. The ad has been placed by New Orleans attorney Joe Peiffer, and it outlined their situation almost exactly. As things turned out, the Landrys were among 60 callers who contacted Peiffer.

The Landrys have since joined an estimated 30 clients who have filed an arbitration claim against Morgan Stanley and three of its financial advisers: Dominick Musso, who is now retired; Jim Musso, who still is with Morgan Stanley in New Orleans; and Bryan Musso, who is now with Smith Barney, also in New Orleans. The couple is among 100 of Peiffer’s cases alleging senior fraud. The claims could be decided by next year.

Christine Pollak, Morgan Stanley vice president of corporate communications speaking on behalf of the firm and the Mussos, says the company has not seen the complaint. “Unfortunately,” she says, “the 2000-2002 bear market negatively affected many investors, including retirees. Morgan Stanley did not improperly induce individuals to retire and provided appropriate risk disclosures to clients, including the fact that their investments could lose value.”

But Peiffer says, “Once Morgan Stanley improperly advised my clients to retire and take large withdrawals from their accounts, they made it a matter of when, not if, my clients would run out of money. No one at Morgan Stanley explained to my clients that they could end up with less than half their life savings left, looking for a job when they were in their early 60s. If they had, my clients never would have retired in the first place.”

Calling it “assembly line fraud,” Peiffer, who is representing the Landrys, maintains what happened to them is only the beginning of an anticipated wave of fraud aimed at baby boomers.

“I’m outraged at what happened to these people,” he says. “I’m the one who sees their dreams ruined and lives in shambles and returning to work in their 60s in some job paying minimum wage because they lost the decent paying job they had because of the broker’s fraud, and they’re devastated and trying to pick up the pieces.”

This case follows another in Baton Rouge in which Peiffer helped win a near-record $22 million award for 32 ExxonMobil retirees in May 2006. After three years, the National Association of Securities Dealers arbitrators ruled broker David McFadden of Securities America had bilked these people’s healthy retirement funds to his own benefit.

Despite the McFadden case and other settlements in the millions that have involved others like Bellsouth retirees, it appears senior fraud is getting worse. Baby boomers, fast approaching retirement age and looking at large retirements, are especially a target, says Herb Perone, spokesman with the SEC’s Financial Industry Regulatory Authority [FINRA].

The agency is trying to get ahead of the problem by bringing enforcement actions and educating near retirees, Perone says. FINRA also is con-ducting enforcement sweeps with brokers, gathering information on how they’re conducting business with seniors.

“There’s no hard data at this point, but the potential for this to become a larger problem is there,” he says. “I wouldn’t think about it only in terms of only retirees, but also workers at firms who get bought out or laid off and get large sums of money in separation.”

In Rochester, N.Y., attorney Robert Pearl represents nearly 200 Kodak and Xerox retirees who went to Morgan Stanley seminars. “Beware of false promises issued at seminars to people considering retirement because that’s what happened in these cases throughout the U.S.,” he says.

“They quit their jobs, which is even more difficult in today’s recessionary times and are now in their early to mid-60s. They’ve suffered tremendous pressure, loss, health problems and loss of their homes through foreclosures.”

Pearl says clients blame themselves, which brokers count on so they won’t be blamed when they claim it was lost to a market downturn. Clients in both cases were invited to Morgan Stanley seminars, during which a broker claimed they could retire pulling 10% a month from their retirement funds [a reasonable rate is 3% to 5%]. Peiffer says research shows they should draw 5% maximum or face running out of money, but he’s seen as high as 12.5% recommended.

“The pitch is the broker will grow the investments to cover the 12.5% withdrawal, which doesn’t happen,” he says. “The client is made to believe they have a conservative portfolio that will weather market changes, but it’s actually a risky one and a downturn in the market destroys the portfolio. By the time a downturn hits, some of these people were left with as little as $100,000, and some to zero of their life savings and retirement. One victim discovered this when his check for expenses bounced.”

In Pearl’s cases, he says a broker put their money in Morgan Stanley mutual funds for the highest commission for himself, which he says are the worst performing funds with high internal expenses.

“The retirees had no clue they were set on a path to poverty with the broker bleeding the account dry,” Pearl says. “I can’t imagine anything worse than this. I see the human devastation on a daily basis, and I’m angry.”

In 1998, shortly after the Landrys attended a Morgan Stanley seminar in New Orleans, their portfolio took a similar downward path. They say broker Bryan Musso told them they could comfortably draw $4,000 a month from their retirement funds. That sounded great, so at age 50, Landry took his retirement and 401(k) money in a lump sum from the former Union Texas Petroleum Company, where he’d worked 30 years. He handed it over to Musso to invest.

On arrival, Peiffer estimates Musso made $35,000 up front in commissions, which grew in the years that followed when Dominick and Jim advised them.

Initially, the Landry’s investment ballooned to nearly $1 million, and then it hemorrhaged. When they questioned it, David says Musso assured them it would get better.

Peiffer says Musso had invested them heavily in Morgan Stanley funds, which all tanked. Now, the Landrys worry and wait, hoping arbitrators will rule in their favor. In the meantime, Alice says she “feels like digging a hole and putting their money in the ground.”