Every broker learns about the Prudent Man Rule when studying for the Series 7. That means, more or less, not to put all your eggs in one basket lest they end up on your face. John Tripi, a former Morgan Stanley broker, invested $214,000 in one stock, Copper Mountain Networks. He held it on the advice of his analysts, he says.
Guess what? After being fired — and losing his dough — Tripi, now a bartender in New York, is suing Morgan Stanley to the tune of $1 million.
Tripi invested $250,000 — left to him after his mother's death — in a few stocks, the most prominent being Copper Mountain. He was fired in December 2000 due to cutbacks, and now he's suing.
His suit claims breach of contract, breach of fiduciary duty and negligence. “I fell victim to the analysts,” says Tripi. “I was just sucked in by their stories.” Morgan Stanley has called Tripi's claims “preposterous.” A spokesperson says Tripi was “well-trained in the principles of diversification” and “chose to ignore his training.”
The track record is unimpressive for suits targeting analysts for bad stock tips. One investor won a $400,000 settlement against former Merrill Lynch analyst Henry Blodget, but that was unusual. And the chance that a trained broker would win a suit against an analyst as a result of losing his own money is a long shot, at best. (An investor suit against one of the analysts Tripi names, Internet analyst Mary Meeker, was thrown out of court.)
Tripi says he repeatedly told his branch manager that since he was investing his own money, he would like to do his own research. He claims he was told to rely on the firm's analysts (many brokers say they trade research with brokers at other firms).
This was the end of the bull run, when a lot of investors were sucked in. But he flouted the basic rules of investing. Tripi didn't diversify among different sectors, or even within a sector.
The suit focuses on Copper Mountain Networks and the recommendations of analyst Alkesh Shah, whom Tripi claims told him personally to “sit tight” as the stock plummeted from $124 a share to, ultimately, $8. Ironically, Tripi may have been disadvantaged by his closeness to the situation. He says his easy access to Shah proved detrimental to his interests, because he called every time he was about to sell, only to be dissuaded by the analyst.
Tripi claims Shah personally reassured him that he had close access to the company's management and there was no reason to be alarmed. Finally, in October 2000, the day before Copper Mountain was set to post its earnings, Tripi called Shah to ask for reassurance that the report would be positive. Shah gave it, Tripi says.
When Copper Mountain didn't meet its projections, the stock collapsed, and, in Tripi's words, “I was busted.” His final complaint is a frequent refrain: “The more you hear from these people, the more you start to believe.”