Morgan Stanley to pay $13 Million in Fines and Restitution
According to The Financial Industry Regulatory Authority (FINRA) on Monday, Morgan Stanley must pay $13 million in fines and restitution to clients for inadequately supervising certain short-term trades.
FINRA said that between January 2012 and June 2015 hundreds of Morgan Stanley brokers advised thousands of clients to sell unit investment trusts before the product had matured and to roll the product over into a new one.
Unit Investment Trusts
Unit investment trusts, like mutual funds and closed-end funds, pay investors a return based on how the trust’s investments perform. They are designed to be held for a certain amount of time after which they close.
The client may pay higher sales charges over time if they sell a position in the trust early and roll it over into a new trust. According to FINRA, this raises questions about how suitable the move is for the investor.
FINRA stated examples where Morgan Stanley brokers sold clients’ unit investment trusts less than 100 days before the fund’s end, and rolled the money over into new trusts.
Additionally, FINRA found the company did not adequately train supervisors to recognize unsuitable short-term training, and did not have a proper system in place to detect and stop the orders before execution.
Morgan Stanley consented to the findings but did not admit or deny the charges. FINRA fined Morgan Stanley $3.25 million, and ordered that it pay clients $9.78 million in restitution.
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