Morgan Stanley Investment Management (MISM) will pay $8.8 million to resolve SEC charges accusing a firm portfolio manager of engaging in a parking scheme that gave preferential treatment to certain client accounts. Also, as part of the settlement, SG Americas, who is accused of helping in the fraud, will pay over $1 million to resolve the charges.
The portfolio manager, Sheila Huang, has consented to an industry bar. According to an SEC probe, while overseeing accounts that had to liquidate certain positions in 2011 and 2012, Huang arranged for the sale of mortgage-backed securities to Yimin Ge, an SG Americas subsidiary, at prices that were predetermined so she could buy back the positions at small markups in other accounts that Morgan Stanley advised.
Huang sold more bonds at prices that were above market so she would not suffer losses for certain accounts. She then bought the positions back at prices that were unfavorable in a fund she oversaw without disclosing this to the client whose fund had been disadvantaged.
Huang is accused of engaging in prearranged transactions for five bond trade sets. As a result of her parking scam, some Morgan Stanley clients benefited more than others. Purchasing clients were generally the ones that profited from the market saving, while buying and selling clients did not.
Huang also is accused of selling bonds at prices that were above market to SG Americas, including two bonds from an MSIM Fund, which was unregistered to the brokerage firm at below market prices, for no valid business purpose. This allowed the above-market prices she sold to be offset. During such sales to SG Americas, Huang moved about $600,000 in losses that were previously unrealized from selling accounts to the Morgan Stanley fund that was not registered.
The regulator says that the firm’s inadequate supervisory oversight and its failure to put into place policies directly dealing with prearranged trades caused it to overlook Huang’s illegal conduct.