Morgan Stanley to pay $15 million for advisers who stole millions from clients: SEC

Those ACH payments, the order states, “were generally to pay an FA credit card account or to transfer funds to an FA account through an online payment program.”

“Protecting investor assets is a core responsibility of every financial services firm, but MSSB’s oversight and compliance policy failures allowed its financial advisors to make hundreds of unauthorized transfers from their client and client accounts and expose many other such accounts to significant risk of harm Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in a statement.

“However, today’s resolution also takes into account the firm’s multiple independent reports to Commission staff and substantial cooperation with Commission staff and its remedial efforts, including compensating victims of financial advisors and retaining a compliance consultant to conduct a comprehensive review of applicable policies and procedures.”

In addition, from October 2015 until at least February 2021, Morgan Stanley Smith Barney “failed to implement policies and procedures reasonably designed to prevent and detect the misappropriation of its FA funds using unauthorized money transfers from multiple unrelated clients or client accounts of the same FA to the same third-party external account,” the order states.

“While Morgan Stanley Smith Barney understood that such activity was a red flag and implemented a third-party fraud detection software system in 2015, which Morgan Stanley Smith Barney believed it mistakenly believed would, among other things, monitor such activity, the system actually was not checked. designed to detect when such wire activity patterns have occurred,” the order said.

In addition, Morgan Stanley Smith Barney “did not perform testing to confirm the use of the system for this purpose for the next five years,” the SEC said. “Morgan Stanley Smith Barney’s failure to reasonably monitor this risk allowed Carter and Rodriguez to misappropriate the Morgan Stanley Smith Barney accounts of their clients and customers without detection.”

Morgan Stanley said in a statement on Monday that “these were separate events, each occurring several years ago. We take these incidents very seriously and have since improved our controls by working with an external expert. We pride ourselves on putting customers first, and in every case where we have become aware of a breach, we have conducted an internal investigation, taken down the offenders, reported them to the appropriate authorities and worked with affected customers to compensate them for any damages.”