The latest compliance issues in wealth management across North America.

Morgan Stanley
Morgan Stanley Smith Barney has agreed to pay a penalty of $3.6 million and undertake a number of actions after failing to stop staff from misusing or misappropriating money from client accounts, the Securities and Exchange Commission said late last week. 

MSSB failed to have “reasonably designed policies and procedures in place” to prevent its advisory representatives from misusing or misappropriating funds from client accounts, an order from the SEC found. Also, although MSSB’s policies provided for certain reviews of disbursement requests, the reviews were not reasonably designed to detect or prevent such potential misconduct, it said. 

The firm’s policies and procedures contributed to its failure to detect or prevent one of its advisory representatives, Barry F Connell, from misusing or misappropriating approximately $7 million out of four advisory clients’ accounts in approximately 110 unauthorized transactions occurring over a period of nearly a year.   

“Investment advisors must view the safeguarding of client assets from misappropriation or misuse by their personnel as a critical aspect of investor protection,” Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office, said.  “Today’s order finds that Morgan Stanley fell short of its obligations in this regard.”

Without admitting or denying the findings, MSSB consented to the SEC’s order, which includes a penalty, a censure, a cease-and-desist order, and undertakings related to the firm’s policies and procedures. 
Morgan Stanley previously repaid the four advisory clients in full plus interest. 

The SEC previously filed fraud charges against Barry Connell, who was also criminally charged by the US Attorney’s Office for the Southern District of New York.  Both sets of charges as to Connell remain pending.

Mitsubishi UFJ Morgan Stanley Securities Co
Mitsubishi UFJ Financial Group’s joint venture with Morgan Stanley faces a Y218 million ($2 million) fine for allegedly manipulating prices in the Japanese government bond futures market.

Mitsubishi UFJ Morgan Stanley Securities Co ordered 10-year bond futures contracts last August without intending to actually execute them, the Securities and Exchange Surveillance Commission said in a statement on Friday. It recommended that the Financial Services Agency impose the fine.

A full statement from the Commission said: “These transactions constituted a series of market transactions of derivatives and offers that would mislead other investors into believing that market transactions of derivatives were thriving and would cause fluctuations in the market of 10-year JGB futures.”