On July 20th Morgan Stanley agreed to pay a $500,000 penalty to settle federal regulators’ charges that it misled customers in its Nashville office about the money management firms it recommended and from which it received commissions. Morgan Stanley – under the agreement with the SEC – agreed to refrain from future violations of the securities laws. The SEC alleged in an administrative proceeding that Morgan Stanley breached its fiduciary duty to clients in Nashville by making “material misstatements” about a program to help clients develop investment objectives.
The SEC also charged William Keith Phillips, a former investment adviser in Morgan Stanley’s Nashville branch office, and that case is pending. Interestingly, Phillips says that he depended on Morgan Stanley’s legal and compliance personnel to ensure that proper disclosures were made and as a result doesn’t believe his actions violated SEC rules.
According to the SEC, the alleged misconduct occurred from 2000 to early 2006 and that, contrary to disclosures to clients, Phillips recommended some money management firms that had not been approved to participate in Morgan Stanley’s advisory program. Scott Friestad, the associate director of the SEC’s enforcement division, said in a statement:
Morgan Stanley said one thing and did another when recommending money managers who had not been properly vetted by the firm, and Phillips repeatedly disregarded Morgan Stanley’s policies and procedures and reaped undisclosed financial benefits from these unapproved managers.
It was reported that Mr. Phillips, who was a top revenue producer, steered clients to three unapproved management firms that paid at least $3.3 million in commissions and fees to both Morgan Stanley and to him. The company and Phillips failed to disclose to clients the potential conflict of interest. Morgan Stanley says that Phillips “is no longer employed and that they have since strengthened their “policies and procedures around the marketing of investment advisory services.”
Source: USA Today
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