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

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.

That said, Morgan Stanley has just announced that during the fourth quarter it would record a $1.3 billion tax benefit because of modifications it made to the way it accounts for its wealth-management business. According to a regulator filing, Morgan Stanley Smith Barney is now a corporation rather than operating as a partnership. The change allowed Morgan Stanley to release a deferred tax liability.

In other Morgan Stanley news, the firm said it is dealing with possible mortgage securities claims from the U.S. Justice Department and a number of state attorneys general. For example, according to, the firm is trying to meet with the Illinois Attorney General’s Office over allegations that the brokerage firm made intentional misrepresentations when it was soliciting state pension funds to get them to buy residential mortgage bonds. The state prosecutor wants the firm to pay $88 million. Also under investigation are Morgan Stanley’s due diligence on loans bought for securitizations, investor disclosures, and foreclosure-related issues.

The SSEK Partners Group represents high net worth individuals and institutional investors.

Morgan Stanley Sets Aside $50 Million to Reimburse Investors, The Wall Street Journal, November 5, 2014

Morgan Stanley may face legal claims from U.S. govt -filing, Reuters, November 4, 2014

Morgan Stanley gets $1.3 billion tax gain on legal-entity switch for wealth arm, MarketWatch, November 5, 2014

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