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FINRA Suspends Financial Advisor to Basketball Players
One of the most well-known financial advisors in the basketball world, Ken Kavanagh, has been suspended by the Financial Industry Regulatory Authority (FINRA). A disciplinary action taken by FINRA against former New York, New York broker and investment advisor Ken Kavanagh suspended him over allegations that he engaged in outside business activities without properly providing notice to his member firm, Morgan Stanley. Kavanagh was suspended from acting as a broker for 18 months as a result of these findings.
According to a Letter of Acceptance, Waiver, and Consent signed on August 5, 2019, Ken Kavanagh “managed the personal affairs” of more than 40 professional athletes who were customers of himself and his member firm, Morgan Stanley, where he had been employed since 2009. FINRA’s findings state that Kavanagh “received approximately $5 million in fees” for his management activities, though he had attested on firm questionnaires that he was not participating in outside business activities. For reference, NASD Rule 3030 states in part that persons registered with FINRA member firms cannot be employed by or accept compensation from other persons as the result of business activities outside the scope of their relationship with their firm unless they provide prior written notice to it. FINRA Rule 3270 makes a similar stipulation, and Morgan Stanley’s supervisory procedures during the period in question required firm employees to request and receive firm approval, in written form, before participating in outside business activities. The AWC Letter also notes that FINRA Rules 2110 and 2010 require individuals associated with FINRA to “observe high standards of commercial honor and just and equitable principles of trade.”
In spite of these restrictions, FINRA’s findings state that Kavanagh “began providing various personal services to professional athletes” beginning in 2003, and that many of these athletes were clients of his firm. His services included the coordination of transportation, housing, travel, and meal arrangements; the referral of tax planners and will planners; and the coordination of payment for items including cars and clothing. FINRA states that in 2007 Kavanagh formed a business called “CEO-Sports” for the purpose of facilitating these outside activities, and in 2011 formed another company, MGMT LLC, with the same aim. Both companies had checking accounts, according to FINRA, “through which he received payments for the personal services he provided.”
In total, according to FINRA, Mr. Kavanagh offered these services to about 42 athletes, garnering “substantial income” of about $5 million in fees for personal services offered between 2012 and 2018. FINRA notes, however, that Kavanagh failed to provide his firm with prior written notice about these activities, and states further that he “concealed his relationship with CEO-Sports and MGMT LLC by naming a close relative as the sole owner and member, and as the authorized representative on the entities’ bank accounts.” He also allegedly attested on six annual firm compliance forms that he was not participating in any outside business activities, despite his conduct managing the athletes’ affairs. FINRA notes that he had no prior disciplinary history with FINRA, the Securities and Exchange Commission, state securities regulators, or other self-regulatory organizations (SROs). He had been registered with Morgan Stanley since 2009, before which he was registered with Citigroup Global Markets since 2006. He voluntarily resigned from his position at Morgan Stanley in 2018 as the result of allegations concerning his participation in “the provision of services to clients outside the scope of the firm’s services.”
As a result of the foregoing alleged conduct, Ken Kavanagh received an 18-month suspension from association in any capacity with any FINRA member firm, and was ordered to pay a fine of $25,000. His suspension commenced on August 5, 2019, and will end on February 4, 2021.