Morgan Stanley to Pay $280,000 for Records and Supervision Failures

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.)

The CFTC order also said that Morgan Stanley did not properly enforce its trading limits for SureInvestment accounts, which led to initial margin requirements that went way beyond applicable trading limits, did not keep sufficient records about the credit trading limit that applied to the accounts, and failed to respond in a timely and accurate manner to the agency’s request for account records.

In other Ponzi scam-brokerage firm news, three ex-brokerage executives of Allied Beacon Partners Inc., a now-defunct independent broker-dealer, must pay a $1.05 million FINRA arbitration fee plus interest to a family that invested in private placements that were apparently scams. The Bosco family accused Allied Beach and the other defendants of not doing enough due diligence, which they believe would have caused the firm to discover that Shale Royalties and Medical Capital were actually fraudulent investments.

Our broker fraud lawyers represent investors and their families in recouping their financial fraud losses. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

CFTC Fines Morgan Stanley Smith Barney for Supervision and Records Failures Relating to Its “Know Its Customer” Procedures, CFTC, September 15, 2014

CFTC Fines Morgan Stanley for Failure to ‘Know Its Customer’, The Wall Street Journal, September 15, 2014

Executives of defunct IBD hit with $1.05 million arbitration award, Investment News, September 16, 2014

More Blog Posts:

Morgan Stanley Must Pay Connecticut Regulators $5M for Supervisory Violations, June 18, 2014

Morgan Stanley Gets $5M Fine for Supervisory Failures Involving 83 IPO Shares Sales, May 6, 2014

PNC Bank Sues Morgan Stanley & Ex-Trust Adviser For “Surreptitious Conspiracy”, Institutional Investor Securities Blog, April 3, 2014