FINRA Fines Morgan Stanley $1M And Orders Them To Reimburse Investors $371,000 Plus Interest
The Financial Industry regulatory Authority (FINRA) announced on November 10, 2011 that it had fined Morgan Stanley & Company Incorporated and Morgan Stanley Smith Barney LLC $1 million and ordered that they pay $371,000 in restitution plus interest to investors for excessive markups and markdowns on corporate and municipal bond transactions.
The investigative arm of FINRA determined that Morgan Stanley had charged markups and markdowns ranging from below 5% to 13.8% on corporate and municipal bond transactions. In addition to related supervisory lapses, the firm was clearly charging excessive fees for executing the trades and providing the services to customers. FINRA determined that Morgan Stanley’s supervisory system was inadequate, in that it would not detect markups or markdowns that were below 5%, even if that would have been excessive given other conditions. Likewise, it was found that Morgan Stanley’s supervisory procedures only considered one or two charges that were added to the cost of a bond in determining if the markup or markdown was fair and reasonable. Accordingly, Morgan Stanley was ordered by FINRA to rework and rewrite its written supervisory procedures relating to the determination of what would be fair and reasonable markups and markdowns in fixed income transactions with its customers.
FINRA issued the following statement regarding the investigation and the order fining Morgan Stanley $1 million and ordering the restitution of $371,000 to investors, plus interest:
“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 a markdown is above or below 5%. Morgan Stanley clearly violated fair pricing standards and FINRA will continue to require firms that violate such standards to make their customers whole.”