Articles Posted in Morgan Stanley

FINRA is ordering Morgan Stanley Smith Barney LLC (MS) to pay about $9.8M in restitution to and a $3.25M fine for purportedly not properly supervising hundreds of financial representatives who sold short-term trades of UITs. The firm settled without denying or admitting to the regulator’s charges.

According to the self-regulatory organization, from 2/2012 through 6/2015, the brokerage firm’s representatives effected short-term UIT rollovers, including a number of them more than 100 days prior to maturity, in customer accounts. FINRA said that the firm did not properly supervise these reps, when they engaged in the UIT sales, nor did it properly train them regarding the investments. It also purportedly failed to give supervisors adequate guidance about how to study transactions for signs of unsuitable short-term trading. Morgan Stanley is accused of failing to put into effect a system “adequate” enough to identify short-term UIT rollovers and of not providing supervisory assessment for UIT rollovers before execution.

UITs
Unit investment trusts are investment companies that offer units in a securities of a portfolio. They are subject to termination on a certain maturity date, usually after 15 months or 24 months. They typically come with certain fees, including a creation fee and a deferred sales charge. According to FINRA, when a new UIT compels a customer to be pay higher sales charges over time, this could be a red flag indicating suitability issues.

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Michael Siva, a former Morgan Stanley broker (MS), has pleaded not guilty to criminal charges accusing him of insider trading. Siva is one of several people charged over their alleged participation in a group of “tipping chains” and trading on tips about upcoming acquisitions and mergers. The information were provided by Bank of America (BAC) consultant Daniel Rivas. Siva is said to have gotten the tips from the James Moodhe, who is the father of Rivas’ girlfriend.

Rivas and Moodhe have both pleaded guilty to the criminal charges accusing them of insider trading. They are cooperating with the government’s probe.

Moodhe is said to have shared Rivas’s tips with Siva from at least 2015 up through earlier this year. Siva allegedly used the information so he could make successful trades for clients as well as for himself. Moodhe and Siva allegedly met at eating places outside NYC during which time the former would read details about upcoming deals to Siva, including the value of the deals and when news about them was expected to go public. The two men allegedly made over $3M trading prior to and after the announcement of the deals.
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FINRA Fines Ex-Morgan Stanley Broker, Issues 15-Day Suspension

The Financial Industry Regulatory Authority has fined an ex-Morgan Stanley (MS) broker $10K and ordered him to serve a 15-day suspension after he allegedly tried to resolve a client’s complaint without the firm’s consent. The regulator is charging Lewis H. Robinson, who now works with BB & T Securities in Florida, with violating Rule 2010. The rule mandates that brokers satisfy “high standards” as they pertain to commercial honor and principles of trade.

According to FINRA, Robinson wrote $12,203 in checks to resolve three complaints made by the client. Advisor Hub reports that Robinson said that he notified Morgan Stanley as soon as the client noticed that the account was overcharged a higher commission rate than what had been agreed upon but that the firm refused to give a refund because the allegedly mistaken excess fee was charged too long ago.

In the U.S. District Court in Manhattan, preliminary settlements have been submitted in which Deutsche Bank (DB) will pay $48.5M and Bank of America (BAC) will pay $17M to resolve investor lawsuits accusing them of manipulating the agency bond market for years. A judge must still approve the settlements.

Despite settling, both banks maintain they did not engage in any wrongdoing. The lead plaintiff investors include the Sheet Metal Workers Pension Plan of Northern California and the Iron Workers Pension Plan of Western Pennsylvania, and KBC Asset Management NV.

According to court papers and as reported by Reuters, Bank of America and Deutsche Bank are two of the 10 banks accused of rigging the $9 trillion agency bond market for supranational, sub-sovereign and agency bonds, also known as SSA bonds. The plaintiffs contend that from 2005 to 2015 the banks shared price information with one another, worked as a “super-desk” together, and allowed traders to coordinate strategies in the name of profit. Meantime, customers had to accept bond prices that were unfair to them.

Massachusetts Secretary of the Commonwealth William Galvin is probing whether there are brokers who are getting paid kickbacks by exchanges in return for investor trades. The investigation comes in the wake of an op-ed article published in The New York Times last month alleging that there are financial representatives who have been sending orders to specific exchanges for these kickbacks, referred to as “rebates,” even if it means poorer results for their institutional investors.

The op-ed was written by Yale Law Professor Jonathan Macey and Yale University Chief Investment Officer David Swensen. Already, the state regulator has sent inquiry letters to Morgan Stanley & Co. (MS), E*TRADE Securities, Charles Schwab & Co. (SCHW), and Fidelity Brokerage Services LLC.

According to the article, because of these “rebates,” brokers are frequently selecting less favorable trades for their institutional investors clients to use these exchanges. If this is true, then it would be distressing considering that institutional brokers are legally bound to make trades on the exchange that has the terms that are most favorable for a client. Failure to do so could be grounds for a securities case. Meantime, it is supposed to be up to the exchanges, all 12 of them, to compete to provide the best trading opportunities.

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The US Securities and Exchange Commission has brought insider trading charges against seven people who made millions of dollars while insider trading on dozens of upcoming acquisitions and mergers involving 30 corporate deals. The regulator’s complaint contends that Daniel Rivas, who used to be a bank IT employee, misused the access he had to a computer system by tipping four people with information that they then used to trade. Some of the those whom Rivas tipped allegedly also tipped other people, who tipped others, too.

InvestmentNews identified the bank that Rivas worked for at the time of the misconduct as Bank of America (BAC). (Bank of America Merrill Lynch later fired Rivas, who was then hired by RBC Capital Markets. In the wake of the insider trading allegations against him, Rivas was suspended by RBC.)

Rivas often tipped James Moodhe, who is the father of his girlfriend, using handwritten notes. Moodhe made approximately $2M from trading on the tips and shared the information with financial adviser Michael Siva, whom InvestmentNews identifies as a former Morgan Stanley (MS) broker.

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.

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Morgan Stanley Ordered to Pay $70M for Tax-Reporting Errors
In its yearly regulatory filing, Morgan Stanley (MS) announced that it took a $70M charge because of tax-reporting mistakes made by its brokerage business from ’11 to ’16. The firm is talking to the Internal Revenue Service to settle any client tax underpayments. Morgan Stanley said that some of its wealth management clients that may have overpaid taxes as a result of these errors and they would be paid back.

The firm also announced that it might sustain a $221.3M loss because of a lawsuit brought by Salzburg, the Austrian state, over commodities derivatives and fixed-income transactions between ’05 and ’12. Salzburg claims that Morgan Stanley did not having the authority or ability to make such deals—a contention that the latter disputes.

Trading Firm Accused of Manipulating US Markets
According to a complaint brought by the US Securities and Exchange Commission, Avalon FA manipulated the US markets on hundreds of thousands of occasions, allegedly making over $21M in a layering scam. The regulator obtained an asset freeze against the Ukrainian trading company.

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Two US regulators have fined Morgan Stanley (MS) for margin account violations that purportedly resulted in the firm using customer funds and securities for its benefit. The US Securities and Exchange Commission fined the firm $7.5M, while the Financial Industry Regulatory Authority imposed a $2.75M fine.

According to the SEC, Morgan Stanley used trades that involved customer money to decrease its borrowing costs. The Commission said that this violates the agency’s Customer Protection rule, which is meant to keep customer money and securities safe so that they can be given back to customers in the event that a brokerage firm were to fail.

The SEC said that from 5/2013 to 5/2015, the firm’s broker-dealer in the US used transactions with an affiliate to decrease the amount it had to deposit in its customer reserve account. Under the Customer Protection Rule, brokerage firms are not allowed to use affiliates to lower their customer reserve account deposit requirements.

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Financial Industry Regulatory Authority Fines Merrill Lynch $2.8M

Finra has fined Merrill Lynch, Pierce, Fenner and Smith Inc. $2.8 million. By settling, the firm is not denying or admitting to the self-regulatory organization’s charges.

FINRA said because of system errors, Merrill Lunch inaccurately reported millions of trades.The regulator said that Merrill Lynch’s supervisory system as it relates to specific matters related to documenting, reporting, and records was  not designed in a reasonable manner.

 

Ernst & Young Settles Audit Failure Charges By Agreeing to Pay Over $11.8M

Ernst & Young LLP has agreed to resolve U.S. Securities and Exchange Commission charges accusing it of audit failures. The monetary settlement, along with the $140M penalty that audit client Weatherford International agreed to pay separately, will go back to investors who were hurt in the accounting fraud.

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