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FINRA Fines Morgan Stanley $1 Million and Orders Restitution of $188,000 for Best Execution and Fair Pricing Violations in Customer Bond Transactions

On August 22, 2013, FINRA announced that it had fined Morgan Stanley Smith Barney LLC and Morgan Stanley & Co. LLC $1 million and ordered $188,000 in restitution plus interest for failing to provide best execution in certain customer transactions involving corporate and agency bonds, and failing to provide a fair and reasonable price in certain customer transactions involving municipal bonds. The requirement to pay restitution is in addition to restitution that Morgan Stanley paid previously to customers for transactions covered by this settlement.

FINRA found that Morgan Stanley failed to use reasonable diligence to ensure that the purchase or sale price to its customers was as favorable as possible under current market conditions in 116 customer transactions involving corporate and agency bonds. Additionally, in 165 transactions involving municipal bonds, Morgan Stanley failed to purchase or sell bonds at prices reasonably related to the fair market value of the subject security.  FINRA cited its October 2011 Letter of Acceptance, Waiver and Consent with Morgan Stanley in which the firm was fined $1 million for unfair markups and markdowns.  Because the evidence suggested that Morgan Stanley had improved its supervisory procedures since 2011, FINRA did not pursue formal charges against the firm for supervision of the activity cited in this latest AWC.

In concluding this settlement, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  Unfortunately for the investing public, FINRA did not disclose in the AWC the percentage markups or markdowns that it found offensive.  It was unclear from the announcement whether customers initiated FINRA arbitrations, or any other type of securities arbitration.  Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.