Morgan Stanley Wealth to pay $697,897 for Failure to Supervise Risky Investments
The Financial Industry Regulatory Authority (FINRA) is reportedly sending a warning to firms that they need to take a closer look at red flags, according to the regulator last week.
FINRA censured Morgan Stanley Wealth Management and ordered it to pay $697,897, a $200,000 fine and $497,897 in restitution, for failing to follow its own policy for overseeing potentially high-risk investment recommendations, according to FINRA public records on November 23.
From January 2014 and December 2018, Morgan Stanley allegedly failed to reasonably supervise nine brokers who made hundreds of potentially unsuitable recommendations to investors with a moderate or conservative risk tolerance, according to FINRA. The investments reportedly included master limited partnerships in the energy sector and early-stage pharmaceutical companies. According to FINRA, eight investors lost a total of $1.6 Million in a Chinese telecom business.
The firm’s policy required the brokers to submit a “Plan of Solicitation” justifying their recommendation if they were attempting to sell a customer on more than 60,000 shares of securities that are not included in the S&P 500 Index, not covered by Morgan Stanley Research, and not rated three stars or better by an independent third-party research service, according to FINRA.
Morgan Stanley reportedly failed to evaluate whether the recommendations were consistent with the customers’ investment profiles, leading to realized losses because of many of the recommended trades.
In the case of the Chinese Telecom company, a broker recommended eight clients, six of whom had a moderate risk tolerance, purchase 112,100 shares. The broker allegedly submitted a required “Plan of Solicitation” after the sale, but the firm never approved it, according to FINRA’s findings. By June 2018, the share value had dropped 93% resulting in $1.6 million in losses.
A review of one of Morgan Stanley’s client’s arbitration awards reportedly led to FINRA’s investigation.
Failure to Supervise
FINRA Rule 3310 requires brokerages “to establish and maintain a supervisory system that is reasonably designed to achieve compliance with applicable securities laws and regulations.” to learn more please see: What is Failure to Supervise? FINRA RULE 3110 (SUPERVISION)
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Tags: failure to supervise, FINRA AWC, finra rule 3310, Morgan Stanley Wealth complaints, Morgan Stanley Wealth fined, Morgan Stanley Wealth investment losses, Morgan Stanley Wealth lawsuit, Morgan Stanley Wealth regulatory actions, Plan of solicitation Last modified: November 28, 2022