USA's SEC sues Morgan Stanley Smith Barney for failing to prevent theft of customer's funds by an employee.
That's not the way the Securities and Investment Commission says it, of course, but it is the underlying truth. Then again, from a body that uses "adviser" (correct) and "advisor" (even our spell-checker knows that's wrong) in the same sentence, says "charges" when it means "sues" and refers to "the SEC's Order" when Orders are made by a court, to say nothing of only issuing proceedings to get a rubber stamp on a back-door deal, looking for underlying truths is never as easy as it first seems. Also, just to confuse things - in 2012, Morgan Stanley issued a press release saying "Morgan Stanley Smith Barney is Now Morgan Stanley Wealth Management" so we aren't even sure who the defendant in this case is. On 9th December, The Securities and Exchange Commission sued Morgan Stanley Smith Barney LLC (MSSB) with failing to reasonably supervise four investment adviser and registered representatives (hereafter, financial advisors)(sic) who stole millions of dollars of advisory clients’ and brokerage customers’ funds and for failing to adopt policies and procedures reasonably designed to prevent and detect such theft. To settle the charges, MSSB agreed to pay a USD15 million penalty and accept certain undertakings.
According to the SEC, MSSB failed to adopt and implement policies and procedures reasonably designed to prevent its financial advisors (don't blame us -- we know the difference. This is the SEC's error!) from using two forms of unauthorised third-party disbursements, Automated Clearing House (ACH) payments and certain patterns of cash wire transfers, to misappropriate funds from advisory client accounts and brokerage customer accounts. The SEC found that MSSB financial advisers (sorry - we just can't go on with such mistakes, even if they are copied) made hundreds of unauthorised transfers from customers’ or clients’ accounts to themselves or for their own benefit.
According to the SEC, until at least December 2022, MSSB did not have a policy or procedure to screen externally initiated Automated Clearing House (ACH) payment instructions to detect instances in which an MSSB financial adviser assigned to the account bore the same name as the beneficiary listed in the ACH payment instructions. The order finds that this led to the firm failing to detect hundreds of unauthorized ACH transfers between May 2015 and July 2022 from its customers’ or clients’ accounts to pay the credit card bill of the financial advisor assigned to the MSSB account or to otherwise benefit the financial adviser.
The SEC found that MSSB violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder and failed reasonably to supervise four former investment adviser and registered representatives within the meaning of Section 203(e)(6) of the Advisers Act and/or Section 15(b)(4)(E) of the Securities Exchange Act of 1934.
Without admitting or denying the SEC’s findings, MSSB consented to a cease-and-desist order, a censure, certain undertakings that include having a compliance consultant review all forms of third-party cash disbursements from customer and client accounts, and to the USD15 million penalty referenced above. MSSB previously entered into settlement agreements with the affected customers and clients to compensate them for their losses.
About that name: we aren't being silly.
2012 press release: https://www.morganstanley.com/press-releases/morgan-stanley-smith-barne…
In a media release in November 2024, the business was referred to as Morgan Stanley Wealth Management. https://www.morganstanley.com/press-releases/future-ready-family-office…
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