Morgan Stanley to Pay Massachusetts $1M to Settle Charges Alleging Unethical Sales Contests Involving Brokerage Customers

To settle charges over a high-pressure sales contest involving its financial advisers and brokerage clients, Morgan Stanley (MS) will pay $1 million to Massachusetts Secretary of the Commonwealth William Galvin. By settling, the firm did not deny or admit to the charges. It must, however, reassess its sales contest policies and notify the state of what is included in them, as well as what changes it might make in the wake of this review.

It was last year that Galvin charged the broker-dealer for cross selling and encouraging wealthy clients to borrow against their brokerage accounts. He also accused senior Morgan Stanley staff of knowing about the contest, determining that it violated the firm’s own internal policies (in addition to Massachusetts securities rules), but yet allowing the contest to continue for a few more months. It was only then that the firm’s Compliance and Risk decided that the contest was “impermissible.”

The program, which also involved a similar contest in Rhode Island, ran between ’14 and ’15. 30 financial advisers at five Morgan Stanley offices participated. The financial representatives are accused of persuading investors to set up new lending accounts. The broker-dealer purportedly rewarded them with bigger “business development allowances” when their efforts were successful. Advisers were given $1K for every 10 loan accounts that were opened, $3K for every 20 accounts, and $5K for every 30 accounts.

At the time that Galvin filed the charges in October, the firm claimed that the charges were meritless and that the clients had agreed to the accounts being opened. Morgan Stanley also noted that clients only paid fees if they took out loans.

Galvin’s complaint contends that the program involving the sales contest was created to enhance banking product sales. The incentive system led to almost $24M in new loan balances.

If you or someone you know was encouraged by Morgan Stanley to take out loans, please contact our securities law firm today. Should a market correction happen, investors who took such loans may be at risk of sustaining major losses.

At The SSEK Partners Group we work with high net worth individual investors and institutional investors to try to recoup their investment losses that were a result of fraud, negligence, or carelessness by a financial representative, brokerage firm, or investment adviser.

Read the Consent Order (PDF)

Read the Complaint (PDF)