-->

SEC Tags Morgan Stanley for Lack of Supervision

The Securities and Exchange Commission (SEC) has charged two former Morgan Stanley DW, Inc. (MSDW) financial advisors, Darryl A. Goldstein and Christopher O’Donnell, with engaging in a fraudulent market timing scheme. “Market timing” refers to the practice of short term buying, selling, and exchanging of mutual fund shares in order to exploit inefficiencies in mutual [...]

The Securities and Exchange Commission (SEC) has charged two former Morgan Stanley DW, Inc. (MSDW) financial advisors, Darryl A. Goldstein and Christopher O’Donnell, with engaging in a fraudulent market timing scheme. “Market timing” refers to the practice of short term buying, selling, and exchanging of mutual fund shares in order to exploit inefficiencies in mutual fund pricing.  According to the SEC, “the conduct occurred from January 2002 until August 2003 and generated approximately $1 million in net commissions or asset-based fees for the defendants.”  According to the SEC, the defendants concealed their illegal activity by opening and trading in multiple brokerage accounts (122 total), using different financial advisor identification numbers (11 total), and trading through variable annuity contracts (64 total).

The bigger concern for investors is that the defendants got away with this scheme under the nose of the firm’s compliance department.  Keep in mind that the defendants allegedly brought in an extra $1 million in commissions through these violations.  Did the lucrative nature of the violations have anything to do with the firm’s failure to stop them? 

The SEC, deciding that Morgan Stanley should have known about this conduct and stopped it, has commenced an administrative proceeding against Morgan Stanley, charging it with inadequate supervision.  Morgan Stanley settled the proceeding by consenting to a censure, disgorgement and prejudgment interest of $5,120,000, and a penalty of $11,880,000, for a total of $17 million.

These cases highlight the need for investors to doubt what they hear from their stockbroker or investment adviser.  The temptations to cheat are so great, the regulators so few, and the penalties levied against violating firms so ineffectual, that we can expect a tsunami of securities law violations in the coming decades as the baby boomer generation retires.  Only those who take independent steps to protect themselves are safe from an industry caught up in the fever of what amounts to the 21st century gold rush-the race to secure the accounts of retiring baby boomers. 

 

Leave a Reply



professional wordpress themes