Morgan Stanley

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation

Published on: December 12, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Securities and Exchange Commission is ordering Morgan Stanley (MS) to pay $4 million for violating the market access rule. The rule mandates that brokerage firms implement adequate risk controls before giving customers market access. An SEC probe, however, found that Morgan Stanley, which gives institutional customers direct market access via an electronic trading desk, did not have the necessary controls in place to stop a rogue trader from putting in orders that went over pre-set trading thresholds.

David Miller, who was an institutional sales trader, then purportedly exploited access to the market. Without Morgan Stanley’s knowledge, he committed financial fraud that would later result in the closure of Rochdale Securities, which was the financial firm where he worked. Miller, who has since partially settled the SEC’s case, pleaded guilty to parallel criminal charges. He was sentenced to 30 months behind bars.

Miller misrepresented to Rochdale Securities that a customer had given the authorization to buy Apple stock. While the customer order was for the purchase of 1,625 Apple shares, Miller instead put in numerous orders, buying 1.625 million shares. He intended to share in the profit if the stock made money but if it didn’t he planned to say he made a mistake about the order’s size.

Citigroup, Credit Suisse, Deutsche Bank, Merrill Lynch, & Other Firms Ordered by FINRA to Pay $43.5M Over Activities Related to Toys “R” Us IPO

Published on: December 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The Financial Industry Regulatory Authority is fining 10 firms $43.5 million in total for letting their equity research analysts solicit investment business and offering favorable research coverage related to the the planned Toys “R” Us initial public offering. The firms were fined: $2.5 million for Needham & Co. LLC; $4 million for Wells Fargo Securities, LLC (WFC), Deutsche Bank Securities Inc. (DB), Morgan Stanley & Co., LLC (MS), and Merrill Lynch, Pierce, Fenner & Smith Inc. respectively; and $5 million each for JP Morgan Securities LLC (JPM), Barclays Capital Inc. (BARC), Goldman Sachs & Co. (GS), Citigroup Global Markets Inc. (C), and Credit Suisse Securities USA LLC (CS). FINRA rules state that firms are not allowed to use research analysts or promise favorable research to garner investment banking business.

In 2010, Toys “R” Us and its private equity owners asked the ten firms to compete for involvement in an initial public offering. The self-regulatory organization said that all of the institutions used equity research analysts when soliciting for this role.

The company asked the analysts to create presentations to determine what their views were on certain issues and if they matched up with the perspectives of the firms’ investment bankers. The firms knew that how well their analysts did with this would impact whether or not they would be given the underwriting role in the IPO.

Morgan Stanley Puts Aside $50M for Clients Who Didn’t Get Prospectuses for Purchased Securities

Published on: November 5, 2014 | by Shepherd Smith Edwards & Kantas, LLP

The wealth-management arm of Morgan Stanley (MS) has set aside $50 million to pay back clients who didn’t get prospectuses after buying certain securities. The firm recently realized that a number of electronic prospectuses were never delivered to clients this year, as well as last.

Brokerages are required to send investors their prospectuses in a timely fashion. Because of the oversight, Morgan Stanley is now offering affected clients the chance to rescind the securities they purchased and receive refunds. The brokerage firm also said that it would reimburse clients for trades that lost value.

The firm had thought the oversight would cause it around $20 million. However, due to a raised level of rescission offer acceptances last month, that amount has more than doubled.

Pension Fund Securities Lawsuits: JPMorgan to Face MBS Case, PERSM Files Class Action Case, & Institutional Clients Can Sue BP

Published on: October 17, 2014 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Ordered to Face $10B Mortgage-Backed Securities Case

A federal judge said that JPMorgan Chase & Co. (JPM) must face a class action securities fraud lawsuit filed by investors accusing the bank of misleading them about the risks involved in $10B of mortgage-backed securities that they purchased from the firm prior to the financial crisis.

U.S. District Judge Paul Oetken certified a class action as to the bank’s liability but not for damages. He said it wasn’t clear how investors were able to value the certificates they purchased considering that the market hadn’t been especially liquid. He did, however, say that the plaintiffs could attempt again to seek class certification on class damages.

Credit Suisse, Goldman Sachs, JPMorgan, and 16 Other Banks Agree to Swaps Contract Modifications to Assist Failed Firms

Published on: October 11, 2014 | by Shepherd Smith Edwards & Kantas, LLP

JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA), Goldman Sachs Group Inc. (GS), Credit Suisse (CS), and fourteen other big banks have agreed to changes that will be made to swaps contracts. The modifications are designed to assist in the unwinding of firms that have failed.

Under the plan, which was announced by the International Swaps and Derivatives Association, banks’ counterparties that are in resolution proceedings will postpone contract termination rights and collateral demands. According to ISDA CEO Scott O’Malia, the industry initiative seeks to deal with the too-big-to-fail issue while lowing systemic risks.

Regulators have pressed for a pause in swaps collateral collection. They believe this could allow banks the time they need to recapitalize and prevent the panic that ensued after Lehman Brothers Holdings Inc. failed in 2008. Regulators can then move the assets of a failing firm, as well as its other obligations, into a “bridge” company so that derivatives contracts won’t need to be unwound and asset sales won’t have to be conducted when the company is in trouble. Delaying when firms can terminate swaps after a company gets into trouble prevents assets from disappearing and payments from being sent out in disorderly, too swift fashion as a bank is dismantled.

Morgan Stanley to Pay a $280,000 Fine to CFTC for Records and Supervision Failures Involving SureInvestment and $35M Ponzi Scam

Published on: September 16, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley Smith Barney, LLC (MS) has settled civil charges by the U.S. Commodity Futures Trading Commission (CFTC) accusing the firm of records violations and inadequate supervision involving its know-your-customer procedures. Aside from a $280,000 fine, the broker-dealer will have to disgorge commissions from the subject accounts involved.

According to the regulator, Morgan Stanley did not diligently oversee its employees, officers, and agents when they opened firm accounts for a family of companies known as SureInvestment, which purportedly ran a hedge fund that was partially based in the British Virgin Islands-considered to be a risky jurisdiction. Because of this geographic circumstance, when the accounts were opened the firm should have subjected them to special observation pursuant to its procedures, including watching out for red flags indicating suspect activities.

The CFTC’s order, however, notes that even though there were a number of red flags in the account opening documents for SureInvestments, Morgan Stanley failed to identify them. Later, it was discovered that SureInvestment doesn’t even exist and that its owner, Benjamin Wilson, was conducting a $35 million Ponzi scam based in the U.K. (Wilson, who has pleaded to criminal charges brought by the Financial Conduct Authority, has been sentenced to time behind bars.)

FINRA Panel Orders Morgan Stanley Unit to Pay Banamex Unit $4.5M Over Alleged Unauthorized Third Party Loans

Published on: August 15, 2014 | by Shepherd Smith Edwards & Kantas, LLP

According to a Financial Industry Regulatory Authority arbitration panel, Morgan Stanley & Co. (MS) must pay Banco Nacional de Mexico SA unit $4.5 million for allegedly letting funds from a family’s trust account be utilized for paying back third-party loans without authorization. The Mexican bank, also known as Banamex, was trustee to the account. It filed its securities arbitration case in 2012.

The trust was established in 2007 with proceeds from a property that members of a family had inherited and decided to sell. Banamex and the beneficiaries of the trust worked with a Morgan Stanley (MS) broker, who ran their accounts. The trust accounts were at a Morgan Stanley banking unit. They were set up in such a way that the assets were not supposed to be used as guarantees to pay third-party loans that another family member’s account had taken.

Morgan Stanley is accused of compelling the trust accounts to guarantee payment of a third-party loan without getting Banamex’s consent. According to the plaintiffs, the brokerage firm improperly guaranteed or recorded the trust assets for the relative, who did not belong to the trust.

Morgan Stanley to Pay $275M to Settle SEC RMBS Fraud Charges

Published on: July 23, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) has consented to resolve Securities and Exchange Commission residential mortgage-backed securities charges by paying $275 million. The regulator had accused the firm of misrepresenting the delinquency status of mortgage loans behind two subprime RMBS during the peak of the financial crisis.

According to the SEC, not only did the firm understate how many delinquent loans were underwriting the securitizations, but also it failed to inform investors of the full scope of the facts that they needed to make informed choices. As a result, investors were defrauded.

The securitizations at issue were collateralized by mortgage loans that had an aggregate principal value balance greater than $2.5 billion. The offerings were the:

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations

Published on: June 18, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Morgan Stanley (MS) must pay banking regulators in Connecticut $5 million over allegations that the broker-dealer did not properly oversee the communications of its brokers. According to The Connecticut Department of banking, there were a number of issues with the firm’s supervisory procedures. The firm is settling without denying or admitting to the securities allegations.

The state regulators say that Morgan Stanley, which has wealth management branch offices in Connecticut, gave them information about their supervisory procedures that either was “obsolete” or nonexistent. Connecticut Securities Division director Eric Wilder also said that the firm had not updated its written supervisory procedures or compliance manuals for a number of years.

Morgan Stanley is accused of depending on an unqualified third-party provider in India to review all email communications. According to Connecticut regulators, the brokerage firm neglected to make sure that whoever was overseeing the India provider had the proper license and was following the Financial Industry Regulatory Authority’s most current procedures. (Wilder said that the minimum criteria that someone in that country needed to fulfill the compliance function was the ability to speak English-Morgan Stanley has specifically denied this allegation.)

Broker Headlines: Former Wells Fargo Broker Must Pay Back Firm $1.2M, Morgan Stanley CEO Wants to Lower Broker Compensation, & Representatives Oppose Best Interest Rules

Published on: June 13, 2014 | by Shepherd Smith Edwards & Kantas, LLP

Ex-Wells Fargo Advisors Broker Must Pay Back Firm $1.2M

A Financial Industry Regulatory Authority panel says that Philip DuAmarel, a former Wells Fargo Advisor (WFC), must pay his former employer back almost $1.3 million. The panel denied his claim that the firm oversold its corporate stock plan services during his recruitment. They told him to pay back the unvested part of an upfront loan he received when he became part of Wells Fargo.

DuAmarel worked for the firm for less than three years when he left in 2010 for Bank of America (BAC) Merrill Lynch. He contended that when the firm was recruiting him he was misled about Wells Fargo’s ability to serve corporate stock plans and also regarding how much he could make for helping executives with their company’s stock trades. DuMarel’s attorney said that the broker left when it became obvious he wouldn’t be able to work with clients they way he did when he was at Citigroup (C) Global Market’s Smith Barney.