Morgan Stanley Fined $1 Million, Plus Restitution

by InvestorLawyers on November 14, 2011

in FINRA,FINRA Regulation,Morgan Stanley

According to a recent press release from the Financial Industry Regulatory Authority (FINRA), Morgan Stanley & Co. Inc. and Morgan Stanley Smith Barney LLC, together were fined $1 million in securities arbitration. Furthermore, Morgan Stanley was ordered to pay $371,000 in restitution and interest. The restitution and interest will go to Morgan Stanley customers because of supervision violations and excessive markups and markdowns that were charged on their municipal bond transactions.

Morgan Stanley Fined $1 Million, Plus Restitution

Markups refer to the difference between the lowest current offering price of an investment for the dealer and the actual price the dealer charges the customer. According to the Municipal Securities Rulemaking Board, or MSRB, “MSRB rules require that the price at which a broker-dealer sells a municipal security to a customer be fair and reasonable, taking into consideration all relevant factors.” Though the MSRB does not set numerical guidelines for what constitutes a “reasonable” markup, they do acknowledge that whether the total price paid by the customer can be considered “fair and reasonable” can be affected by the mark-up.

According to FINRA’s investigation, Morgan Stanley’s 5 percent to 13.8 percent markups and markdowns were higher than warranted when considering market conditions, value of services rendered to customers and the cost of executing the transactions. In addition, the supervisory system Morgan Stanley had in place for corporate and municipal bond markups and markdowns was found to be inadequate by FINRA. Inadequacies of the supervisory system included a failure to include markups and markdowns less than 5 percent — regardless of if they were excessive or not — and the firms’ policies and procedures.

“Firms must ensure that customers who buy and sell securities, including corporate and municipal bonds, receive fair and reasonable prices regardless of whether a markup or markdown is above or below 5 percent,” says According FINRA executive vice president of market regulation Thomas Gira. “Morgan Stanley clearly violated fair pricing standards and FINRA will continue to require firms that violate such standards to make their customers whole.”

Without admitting or denying the charges, Morgan Stanley consented to FINRA’s findings. If you have invested with a firm that you believe has charged excessive markups or markdowns, please bring it to the attention of an investment attorney at The Law Office of Christopher J. Gray by calling (866) 966-9598.

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