Morgan Stanley Smith Barney LLC, a FINRA member brokerage firm, has been censured, fined $3,250,000.00, and agreed to pay $9,786,964.88 in restitution to customers by consenting to findings that Morgan Stanley failed to supervise a stockbrokers’ unit investment trust trades in the firm’s customer accounts. Letter of Acceptance, Waiver and Consent, No. 2016048805501 (Sept. 25, 2017).
According to the AWC, from January of 2012 to June of 2015, supervisory procedures were not established or maintained at the firm in a manner that would allow the supervisory staff to uncover and put a stop to unsuitable short-term trading involving unit investment trusts. The AWC indicated that in certain cases of unit investment trusts, which are investment companies registered with the Securities and Exchange Commission (SEC), the products contain lengthy commitment periods, high costs, complex structures and short-term trading activities that could amount to unsuitable and improper transactions.
The firm apparently placed $33,400,000,000.00 in unit investment trust transactions, which led the firm to accumulate commissions and sales credits of at least $650,000,000.00. Particularly, there were $5,200,000,000.00 in unit investment trust transactions where funds from customers had been rolled over in premature fashion; evidently 100 days before the maturity of the investments.
The AWC stated that the firm’s unit investment trust sales compliance materials did not properly guide supervisory staff on how the transactions were supposed to be monitored to identify instances of short-term trading as well as unsuitable rollovers. Critically, from January of 2012 to June of 2015, the firm failed to train stockbrokers on any specific unit investment trust investment subject matter.
Moreover, the firm’s supervision systems were inadequately designed for identifying rollovers of unit investment trusts that lacked suitability when exposed to short-term trading by stockbrokers. In addition, the firm reportedly failed to track unit investment trust switches simply because they were defined by the firm as rollovers instead of switches. As a result, the firm’s supervisors failed to monitor thousands of transactions effected by hundreds of the firm’s staff, and it was not until June of 2015 that the firm brought short-term trading of unit investment trusts into the firm’s supervisory controls. FINRA found that the firm’s conduct was violative of FINRA Rules 2010 and 3110, as well as NASD Rule 3010.
Guiliano Law Group
Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.
For more information concerning common claims against stockbrokers and investment professionals, please visit us at securitiesarbitrations.com
To learn more about FINRA Securities Arbitration, and the legal process, please visit us at securitiesarbitrations.com
