Morgan Stanley Smith Barney will pay a $15 million fine to settle SEC charges

Morgan Stanley Smith Barney will pay a $15 million fine as part of a settlement with the Securities and Exchange Commission related to four financial advisers who stole millions of dollars from the advisers’ and brokerage clients’ funds.

The settlement, announced Monday night, also relates to the firm’s failure to adopt policies and procedures designed to prevent and detect such thefts.

The SEC’s order said MSSB failed to adopt and implement policies and procedures reasonably designed to prevent its financial advisors from using two forms of unauthorized third-party payments, automated clearinghouse payments and certain wire transfer models, to misappropriate funds from client accounts. The order alleges that financial advisers located in Texas and California made hundreds of unauthorized transfers from client accounts to themselves or for their own benefit.

In 2009, Morgan Stanley formed a joint venture with Citigroup’s Smith Barney and fully acquired the business in 2013.

The SEC reported that until at least December 2022, MSSB did not have a policy or procedure to review externally initiated ACH payment instructions to detect instances where one of its financial advisors assigned to an account had the same name as the named beneficiary in ACH. payment instructions. As a result, the company failed to detect hundreds of unauthorized ACH transfers between May 2015 and July 2022 from the accounts of its customers or clients.

“Protecting investor assets is a core responsibility of every financial services firm,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “Today’s resolution also takes into account the firm’s multiple reports to and substantial cooperation with Commission staff and its remedial efforts, including compensating victims of financial advisors and retaining compliance counsel to conduct a comprehensive review of applicable policies and procedures.”

In addition to the $15 million fine, MSSB, which did not admit or dispute the SEC’s findings, agreed to a cease and desist, reprimand and certain covenants that include an audit by a compliance consultant of all forms of third-party cash payments. from customer and customer accounts.