Morgan Stanley’s wealth management arm will pay a multi million-dollar penalty after allegedly failing to stop four former financial advisors from stealing cash from customer accounts.
The U.S. Securities and Exchange Commission (SEC) is charging Morgan Stanley Smith Barney (MSSB) for failing to adopt measures and policies that could have prevented four ex-financial advisors from draining client funds.
Between May 2015 and July 2022, the SEC says the former financial advisors in question initiated hundreds of transfers from customer accounts to accounts they controlled for personal gain.
The SEC says MSSB had no system in place to catch financial advisors that control clients’ accounts from fraudulently listing their own names as beneficiaries of Automatic Clearing House (ACH) payment instructions. The deficiency allowed the former employees to extract millions of dollars from client accounts without getting detected.
According to the SEC, MSSB’s failure to reasonably supervise its former employees constitutes a violation of the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934.
Says Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement,
“Safeguarding investor assets is a fundamental duty of every financial services firm, but MSSB’s supervisory and compliance policy failures let its financial advisors make hundreds of unauthorized transfers from their customer and client accounts and put many other such accounts at significant risk of harm.”
MSSB agrees to pay $15 million in fines without admitting or denying the SEC’s allegations. The firm also consents to a cease-and-desist order and a censure while allowing a compliance consultant to review the policies and procedures involved in the release of funds from customer accounts.
Morgan Stanley also compensated all customers affected for their losses.
Since 2000, Morgan Stanley has shelled out over $4.712 billion to resolve enforcement actions related to investor protection violations, according to the Violation Tracker database
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