The tail wagging the dog. Broker sell you unsuitable investments, no problem. We will just secretly change your investment objectives.
Morgan Stanley Smith Barney, a broker-dealer headquartered in Purchase, New York, has been censured and fined $1,500,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm failed to set forth adequate supervision systems to ensure that customers received prospectuses and investment objective change letters. Letter of Acceptance, Waiver and Consent, No. 2014042651801 (Dec. 1, 2016).
According to the AWC, the firm allowed customers to retrieve investment prospectuses electronically via hyperlinks found on Morgan Stanley’s website. However, between November of 2013 and August of 2013, Morgan Stanley did not provide an estimated two million customers with prospectuses because the hyperlinks did not function. FINRA found that the firm’s failure to provide prospectuses to customers was conduct violative of FINRA Rule 2010 and NASD Rule 3010.
The AWC additionally stated that from November of 2013 to December of 2014, approximately twenty-three thousand and five-hundred letters concerning investment objective change letters were not sent to customers by the firm. Apparently, these letters were supposed to have been provided based upon Morgan Stanley’s procedures, which also called for a supervisor to review and approve of changes made by financial advisors concerning the investment objectives of the firm’s customers.
Further, the AWC stated that certain investment objective changes did not go into effect for investors, and instead were automatically denied through Morgan Stanley’s systems. This evidently resulted in the firm’s failure to apprise customers that there were no investment objective changes made in the customers’ accounts. FINRA also noted that financial advisors and supervisors were not made aware that the firm rejected customers’ investment objective changes, preventing the individuals from further reviewing the issue. FINRA found that the firm’s failure to provide the investment objective change letters was conduct violative of FINRA Rule 2010, 4511, 3010, NASD Conduct Rule 3010, Securities Act of 1933 Section 17(a)(1), as well as Rules 17a-3(a)(17)(i)(B)(3) and 17a-4(e)(5).
The AWC additionally stated that from June of 2012 to June of 2016, four thousand investment objective change letters were not sent to customers within the required thirty-day time frame. FINRA found that the firm’s conduct here was also violative of FINRA Rule 2010, 4511, 3010, NASD Conduct Rule 3010, Securities Act of 1933 Section 17(a)(1), as well as Rules 17a-3(a)(17)(i)(B)(3) and 17a-4(e)(5).
FINRA Public Disclosure reveals that since February 2, 2009, Morgan Stanley has been named in thirty-five regulatory events, and eighty customer initiated investment related arbitration claims concerning allegations of the firm’s misconduct.
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