Morgan Stanley to Pay $3.6M Over Supervisory Failures
Morgan Stanley Smith Barney has agreed to settle with the SEC to the tune of $3.6 million over alleged failures to control its registered representatives’ use of client funds, according to a press release from the regulator.
The wirehouse allegedly failed to prevent its advisors, in particular Barry Connell, from misusing or misappropriating client funds, the SEC says.
Over the course of around 110 unauthorized transactions during the course of a year, Connell allegedly misused or misappropriated $7 million from four advice clients’ accounts, according to the regulator. Morgan Stanley has already repaid the four clients in full plus interest, the SEC says.
But the firm also lacked adequate policies and procedures to prevent its advisors from misusing or misappropriating client funds, according to the SEC’s order.
Without admitting or denying the regulator’s findings, Morgan Stanley agreed to a censure, a cease-and-desist order and an overhaul of its polices and procedures, on top of the $3.6 million penalty, according to the press release.
A Morgan Stanley spokeswoman tells Reuters in a statement the company is happy with the settlement.
And the wirehouse has already been able to make back some of the money it lost as a result of Connell’s actions. In April, a Finra panel ordered the former advisor to pay the wirehouse $6 million in compensatory damages and interest. Morgan Stanley discharged Connell in November following allegations of unauthorized withdrawals and transfers of clients funds.
Connell had started in the industry in 1999 at UBS Financial Services before joining Morgan Stanley in 2008. He is still facing criminal charges in a New York federal criminal court related to the fund misappropriations, with the case still pending, according to Reuters.