Morgan Stanley Smith Barney will pay a $15 million penalty as part of a settlement with the Securities and Exchange Commission related to four financial advisers who stole millions of dollars of advisory clients°®¶¹app and brokerage customers°®¶¹app funds.
The settlement announced late Monday is also related to the firm°®¶¹apps failure to adopt policies and procedures designed to prevent and detect such theft.
The SEC order said that Morgan Stanley Smith Barney failed to adopt and implement policies and procedures reasonably designed to prevent its financial advisers from using two forms of unauthorized third-party disbursements, Automated Clearing House payments and certain patterns of cash wire transfers, to misappropriate funds from customer accounts. The order said the financial advisers, located in Texas and California, made hundreds of unauthorized transfers from customers°®¶¹app or clients°®¶¹app accounts to themselves or for their own benefit.
Morgan Stanley formed a venture with Citigroup°®¶¹apps Smith Barney in 2009 and purchased the business outright in 2013.
The SEC said that until at least December 2022, Morgan Stanley Smith Barney did not have a policy or procedure to screen externally initiated ACH payment instructions to detect instances in which one of its financial advisers assigned to the account bore the same name as the beneficiary listed in the ACH payment instructions. As a result the firm didn°®¶¹appt detect hundreds of unauthorized ACH transfers between May 2015 and July 2022 from its customers°®¶¹app or clients°®¶¹app accounts.
°®¶¹appSafeguarding investor assets is a fundamental duty of every financial services firm,°®¶¹app Sanjay Wadhwa, acting director of the SEC°®¶¹apps Division of Enforcement, said in a statement. °®¶¹appToday°®¶¹apps resolution also takes into account the firm°®¶¹apps several self-reports to, and substantial cooperation with, the Commission staff and its remedial efforts, including compensating the financial advisers°®¶¹app victims and retaining a compliance consultant to conduct a comprehensive review of the relevant policies and procedures.°®¶¹app
Aside from the $15 million penalty, Morgan Stanley Smith Barney, which did not admit or deny the SEC°®¶¹apps findings, has consented to a cease-and-desist order, a censure and certain undertakings that include having a compliance consultant review all forms of third-party cash disbursements from customer and client accounts.
°®¶¹appThese were isolated events, each of which occurred several years ago. We take these incidents very seriously and have since enhanced our control framework, working in conjunction with an outside expert,°®¶¹app a Morgan Stanley spokesperson said in an emailed statement. °®¶¹appWe pride ourselves on putting clients first, and in each instance, when we learned of the wrongdoing, we conducted an internal investigation, terminated the wrongdoers, reported them to the proper authorities and worked with affected clients to compensate them for any harm.°®¶¹app
