On November 21, 2022 FINRA censured Morgan Stanley Smith Barney LLC for its failure to supervise nine registered representatives who recommended potentially high risk securities to their customers. The firm previously paid restitution to some of the customers who suffered losses as a result of its conduct. FINRA ordered Morgan Stanley to pay restitution to the remaining customers.
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. 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. The investigation revealed that Morgan Stanley received alerts that some of its registered representatives had made hundreds of recommendations that violated the firm’s Plan of Solicitation policy. The firm’s procedures require that a supervisor at the firm review and approve the Plan of Solicitation prior to the representative recommending the security. Each of the representatives recommended that customers purchase securities in quantities that were subject to the firm’s pre-approval requirement but did not complete a Plan of Solicitation. Some of the recommended securities were high risk and inconsistent with certain of their customers’ moderate or conservative risk tolerances. The firm did not take appropriate action in response to alerts that its representatives had violated its own policies. 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. Subsequently, the firm improved its enforcement of the Plan of Solicitation policy, including by directing review of Plan of Solicitation alerts to a central review unit.
Without admitting or denying the findings, the firm consented to the entry of findings that it failed to reasonably supervise registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy. Morgan Stanley was fined $200,000.00 and required to pay $497,897, plus interest in restitution to affected customers.
Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential. Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.