FINRA fines Morgan Stanley for deficient supervision of nine reps
Morgan Stanley Smith Barney LLC has agreed to pay a fine of $200,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).
From January 2014 through December 2018, Morgan Stanley failed to reasonably supervise nine registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy.
Morgan Stanley received alerts that nine registered representatives had made hundreds of recommendations that violated the firm’s Plan of Solicitation policy . The Plan of Solicitation policy requires that representatives seeking to recommend, in the aggregate, more than 60,000 shares of a security not included in the S&P 500 Index, not covered by Morgan Stanley Research and not rated 3 stars or better by an independent third-party research service, complete a “Plan of Solicitation” setting forth their rationale for doing so.
The firm’s procedures also require that a supervisor at Morgan Stanley review and approve the Plan of Solicitation prior to the representative recommending the security.
Each of the nine representatives recommended that customers purchase securities in quantities that were subject to Morgan Stanley’s pre-approval requirement but did not complete a Plan of Solicitation. Some of the recommended securities, including master limited partnerships in the energy and natural resources sectors and early-stage pharmaceutical, biotechnology and telecommunications companies, were high risk and inconsistent with certain of their customers’ moderate or conservative risk tolerances.
Morgan Stanley did not take appropriate action in response to alerts that its representatives had violated the Plan of Solicitation policy. In particular, the firm did not evaluate whether the recommendations were consistent with the customers’ investment profiles. These customers incurred realized losses as a result of many of the recommended trades.
Therefore, Respondent violated NASO Rule 3010 and FINRA Rules 3110 and 2010.
On top of the $200,000 fine, Morgan Stanley has agreed to pay restitution of $497,897 plus interest.