Morgan Stanley

Morgan Stanley Former Associate and Husband Sentenced in Insider Trading Scheme

Published on: October 16, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The U.S. District Court for the Southern District of New York has sentenced former Morgan Stanley Associate Randi Collotta and her husband, an attorney, to home confinement and ordered them to pay more than $10,000 in fines, plus a forfeiture, for their alleged roles in a large insider trading scheme which apparently resulted in at least $15 million of illicit profits.

At all relevant times, Randi Collotta was an associate in Morgan Stanley & Co. Inc.’s global compliance division, the indictment said. Her husband practiced law at a firm in Long Island at the time of his arrest, a source knowledgeable with the case said. The SEC charged the Collottas and 12 others with insider trading violations for using information stolen from UBS Securities LLC and Morgan Stanley.

The indictment detailed trades the Collottas allegedly made with insider information gained by Collotta at Morgan Stanley. She passed the information to her husband, who passed it to a co-conspirator, who then made trades based on the information and passed the information to a second co-conspirator, who traded on the information as well.

Oppenheimer, Morgan Stanley, Nomura Securities, and A.G. Edwards Traders Face SEC Charges of Stealing Stock Loan Kickbacks Worth $12 Million Plus

Published on: October 12, 2007 | by Shepherd Smith Edwards & Kantas, LLP

38 stock loan traders from A.G. Edwards, Morgan Stanley, Oppenheimer, and Nomura Securities are accused of stealing over $12 Million in stock loan kickbacks from their Wall Street firms. The Securities and Exchange Commission has charged the employees with the more than $12 million theft.

The SEC says that from 1998-2006, the traders worked with fake stock loan finders to skim profits from their employers through finder fees as well as cash kickbacks from finders. The stock loan traders conducted actual, legal stock loans but logged that the transactions involved finders so there would be finder’s fees.

The finders were usually friends or relatives of the traders who were in charge of illegitimate “shell companies” that were not even a part of the stock loan business. The “finder” would then pay traders with stock loan kickbacks. The more sophisticated scams involved traders using their kickbacks to pay the other traders who had pushed through the loan transactions.

Merrill Lynch, Morgan Stanley and Bear Stearns Suffer Losses as Ratings Agencies Are Grilled over Sub-prime’s

Published on: October 11, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch will soon report third quarter earnings which analysts have revised downward. An analyst at competitor Goldman Sachs says that Merrill’s earnings for the third quarter will be about $1.80 per share, down from $1.95 and lowered Merrill’s stock price target to $94 from $108. The Goldman analyst predicted that Merrill will have $4 billion in write-downs, primarily from the fixed income division, resulting in a net loss of $1.5 billion for the quarter.

Other analysts’ expectations were even even lower: Fox Pitt Kelton’s analyst lowered earnings per share estimate for Merrill to $1.20, from a previous estimate of $1.91, “while noting that forecasting confidence is low in periods such as these.” He also expected the firm to experience $3.5 billion “in gross negative marks and realized losses” on leveraged loans, CDOs, and mortgages resulting in $2.2 billion in net losses and attributes the more positive net loss estimate to “$700 million in hedging gains; $500 million in loan fees; and $100 million in gains on liability marks.”

Morgan Stanley reported last week that it suffered a 17 percent drop in profit compared to the third quarter last year, earning $1.44, about ten cents below analysts’ estimates, with loan losses of $1 billion the culprit.

Morgan Stanley Fined $7.5 Million by SEC for Trade Confirmation Violations

Published on: October 10, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission has filed Morgan Stanley $7.5 million to settle charges that it provided insufficient written trade confirmations to its customers for municipal securities and bonds.

Morgan Stanley Dean Witter, Inc, a subsidiary of Morgan Stanley, furnished customers with trade confirmations that had missing or incorrect information relating to yield, call dates and/or prices and other features of the bonds, the SEC said.

This sanction by the SEC against Morgan Stanley Dean Witter comes on the heals of $10.4 million in fines against 14 other broker-dealer firms by the New York Stock Exchange over similar charges. Morgan Stanley agreed to pay the settlement without admitting or denying the commission’s findings in its investigation.

Morgan Stanley to Pay $12.5 Million in Compensation and Fines

Published on: October 1, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley says it will pay $12.5 million as part of a settlement to resolve charges that the company neglected to produce e-mails that had been lost during the September 11, 2001 terrorist attacks in New York.

The Financial Industry Regulatory Authority (FINRA) announced the settlement on Thursday. Morgan Stanley will pay $9.5 million to a fund designated for thousands of investors that have filed arbitration complaints. The remaining $3.5 million is a fine. The settlement also resolves charges that Morgan Stanley did not provide other documents required for certain arbitration cases.

Morgan Stanley will retain an independent consultant to make sure that retail brokerage clients in arbitration get specific materials that they need. By agreeing to the settlement, Morgan Stanley is not admitting to any wrongdoing.

Morgan Stanley Allegedly Made Illegal Financial Sales Calls to Individuals from CareerBuilder.com

Published on: September 19, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Regulators in Massachusetts have charged Morgan Stanley and three of its employees with illegally cold calling people that had posted their resumes on CareerBuilder.com.

According to the complaint by the stae, Arlen Fox, a Morgan Stanley broker in Boston, regularly downloaded thousands of resumes off the Web site. He and Morgan Stanley allegedly did not check to see whether the names were on “do-not-call” lists, and violated federal and state lists as a result. This alleged scam, violates Morgan Stanley’s legal agreement with CareerBuilder.com, as well as the privacy of the latter’s customers.

The resumes had valuable data, such as cell phone numbers and salary figures that Morgan Stanley should never have accessed through the site for prospecting purposes.

Morgan Stanley Fined Again – This Time for Overcharges

Published on: August 3, 2007 | by Shepherd Smith Edwards & Kantas, LLP

The New Financial Industry Regulatory Authority (FINRA) has fine Morgan Stanley $1.5 million and ordered restitution of $4.6 million for overcharging clients on bonds.

FINRA is the former NASD, plus the NYSE regulatory unit, and is the primary regulator of the securities industry. FINRA discovered that Morgan Stanley’s retail unit had overcharged clients on 2,800 purchases totaling $59 million. The securities in question are notes issued by Kemper Lumbermen’s Mutual Casualty Co.

The value of bonds is often difficult to determine and unwary clients can often easily become victims of overcharges. A rule of thumb is that securities should not be marked up more than 5%, except in extraordinary situations. However, markups on debt instruments, including bonds and notes, should be even lower because such markups greatly alter the investor’s return.

Morgan Stanley Last Again in Customer Satisfaction

Published on: July 24, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Each year the research firm of J.D. Power ranks the largest brokerage firms based on customer satisfaction. This year’s survey polled 5,000 investors and asked them to rate factors such as the quality of their broker, account set-up, investment offerings, and investment performance. Similar polls are taken regarding airlines and other companies which serve the public.

For the second straight year, Morgan Stanley’s retail brokerage unit ranked 11th in customer satisfaction, which was last place in the poll. Highly publicized problems at Morgan Stanley, including a public uprising of high level executives, prompted the ousting of that firm’s CEO.

The management shake-up also included replacement of the head of Morgan Stanley’s retail unit, with James Gorman moving from Merrill Lynch to accept the position. Changes have been initiated by Gorman, including the release of almost 1,000 under-performing brokers and addition of several new products. While his efforts may be a work in progress, results so far have obviously been less than stellar.

Morgan Stanley Fined By State Regulator for Failure to Supervise Mutal Fund Sales

Published on: July 9, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley & Co. Inc. agreed to pay a $250,000 civil penalty to end claims by Rhode Island Regulators that it failed to supervise sales representatives who engaged in unethical and dishonest practices in the sale of mutual funds and variable annuities.

According to the director of the Rhode Island Department of Business Regulation, the practices in question took place in Morgan Stanley’s Providence office. Morgan Stanley agreed to the penalty and will undertake a comprehensive review of the practices of the two sales representatives involved to ensure that there are no other violations of the securities statutes and rules involving other clients.

The state’s superintendent of securities said the investigation uncovered securities laws violations that occurred over a three-year period and involved a lack of supervision and oversight of the sales representatives. “Morgan Stanley failed to ensure that there were adequate procedures in place reasonably designed to prevent these unlawful practices,” she said.

Do Wall Street Powerhouses Earn Billions Through Fraudulent Fund Sweeps?

Published on: June 24, 2007 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, Morgan Stanley, Smith Barney and Charles Schwab are being sued for claims they improperly directed their clients’s funds into lower paying deposit accounts at affiliate banks, enabling those banks to reap billions in extra profits. Attorneys for investors seek permission to add Wachovia, based on “sweep” accounts it will receive from AG Edwards in an impending merger.

Details of the suit, filed in January but amended last month, had not previously been reported. Bank deposit sweep programs “put the broker in a very conflicted position” said an attorney for the investors recently, adding “this is not what they should be doing as financial advisers.”

The claim states that the firms are positioning themselves as objective financial advisers, but send their customers’ funds into bank deposits paying far less than market rates, adding that the firms disclose to clients that more profitable accounts are available, but bury the disclosures in documents while failing to mention the magnitude of their profits.