Morgan Stanley’s wealth management division will have to pay a multi-million dollar fine after allegedly failing to stop four former financial advisors from stealing cash from client accounts.
The U.S. Securities and Exchange Commission (SEC) is suing Morgan Stanley Smith Barney (MSSB) for failing to adopt measures and policies that could have prevented four former financial advisors from withdrawing money from clients.
According to the SEC, between May 2015 and July 2022, the former financial advisors in question initiated hundreds of transfers from client accounts to accounts they managed for personal gain.
The SEC says MSSB had no system in place to catch financial advisors who monitor client accounts fraudulently listing their own names as beneficiaries of Automatic Clearing House (ACH) payment instructions. The shortage allowed the former employees to withdraw millions of dollars from customer accounts without being noticed.
According to the SEC, the MSSB’s failure to reasonably supervise its former employees violates the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934.
Says Sanjay Wadhwa, Acting Director of the SEC’s Enforcement Division:
“Protecting investors’ assets is a fundamental duty of any financial services provider, but the failure of the MSSB’s supervisory and compliance policies allows its financial advisors to make hundreds of unauthorized transfers from their customer and client accounts, leaving many other such accounts are at significant risk of harm.”
MSSB agrees to pay $15 million in fines without admitting or denying the SEC’s allegations. The company also agrees to a cease and desist order and a censure, while a compliance consultant can review the policies and procedures involved in releasing funds from customer accounts.
Morgan Stanley also compensated all affected customers for their losses.
According to the Violation Tracker database, Morgan Stanley has spent more than $4.712 billion since 2000 to resolve enforcement actions related to investor protection violations.
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