The Financial Industry Regulatory Authority said that Morgan Stanley Smith Barney, LLC (MS) and Scottrade, Inc. will pay fines of $650K and $300K, respectively. The firms are settling claims accusing them of not putting into place supervisory systems that could reasonably monitor customer funds transmitted to third-party accounts. The self-regulatory organization cited both financial firms for having weak supervisory systems a few years back, but they purportedly did not take the necessary steps to remedy the deficiencies.
The SRO contends that from 10/08 to 6/13, three Morgan Stanley-registered representatives in two of the firm’s branch offices converted $494,000 from thirteen customers by setting up fraudulent wire transfer orders and branch checks from the clients’ accounts to third-party accounts. One example of such an instance involves representatives transferring funds from several customer accounts into their own bank accounts.
FINRA said that Morgan Stanley should have put into place systems and procedures that would have allowed it to review and monitor such transmissions. The regulator said that instead, the supervisory failures let the conversions occur without detection.
With Scottrade, FINRA claims that from 10/11 to 10/13 the firm did not get customer confirmations for third-party wire transfers that were under $200K and failed to make sure that proper personnel received confirmations for third-party wire transfers that were between the amounts of $200,000 and $500,000. Over these two years, the firm is accused of processing more than 17,000 third-party wire transfers that totaled more than $800 million.
By settling, Scottrade and Morgan Stanley are not denying or admitting to the FINRA charges. They are, however, agreeing to an entry of the regulator’s findings.
Also known as failure to supervise, inadequate supervision by a financial firm can lead to dire consequences for investors, especially when its representatives or others are allowed to commit fraud or other wrongdoing because of these lapses. Usually, it is the investors who suffer when their funds are stolen or lost in the market due to negligence.
It is the job of every broker-dealer to design and implement written procedures and policies for supervising its employees and their activities. Failure to supervise a broker or another financial representative who commits fraud can be grounds for an investor claim against that firm.
Please contact one of our failure to supervise lawyers to find out whether you have grounds for a securities case against a financial firm or one of its representatives. The SSEK Partners Group would like to offer you a free case consultation.