FINRA FINES MORGAN STANLEY $1.5 MILLION FOR OVERCHARGING IN CORPORATE BOND SALES. FINRA ORDERS MORGAN STANLEY TO PAY $4.6 MILLION IN RESTITUTION TO CUSTOMERS.
by Lawrence C. Melton, Esq. firstname.lastname@example.org
THE HAYES LAW FIRM, www.dhayeslaw.com, toll free phone # 1-866-332-3567
FINRA (Financial Industry Regulatory Authority) has fined Morgan Stanley $1.5 million and ordered the firm to pay $4.6 million in restitution, accusing Morgan Stanley of selling corporate bonds to its customers at excessive prices. The individual trader, Kenneth S. Carberry III, was fined $40,000 and suspended ONLY fifteen days. The transactions involved Kemper Lumbermans Mutual Casualty Surplus Notes. Morgan Stanley failed to provided an adequate supervisory system for monitoring the pricing of corporate bonds sold to customers. (See FINRA News Release, August 2, 2007). Here is the link to FINRA's press release: https://www.finra.org/PressRoom/NewsReleases/2007NewsReleases/P036362
- Earlier this year the NASD and the New York Stock Exchange (NYSE) agreed to a merger that would combine the member regulation operations into a single, new self-regulatory organization (SRO) that will be the sole private-sector regulator for all 5,100 securities brokers and dealers doing business with the public in the United States. The new SRO, under the title FINRA, Financial Industry Regulatory Authority, brings together all of NASD and NYSE enforcement functions, including customer arbitration. Last week the SEC approved the merger. The fine against Morgan Stanley is FINRA's first official disciplinary act against a major brokerage house.
Susan Merrill, FINRA Executive Vice President and Chief of Enforcement said:
"Firms have a fundamental obligation to their customers to offer securities at prices that are fair and reasonable. In this case Morgan Stanley and its bond trader breached that obligation, resulting in excessive mark-ups in more than 2,800 transactions. Firms should carefully monitor the methods used by traders in setting prices to ensure that the prices paid by customers are not excessive."
(See FINRA News Release, August 2, 2007). https://www.finra.org/PressRoom/NewsReleases/2007NewsReleases/P036362
I agree with Susan Merrill's comments, as well as the general fine and the order of restitution. But I don't understand the suspension. The individual broker only received a two-week suspension for activities that cost investors nearly $5 million dollars. How does this prevent recidivism?
Law Professor Jayne W. Barnard of William & Mary recently published a research paper addressing recidivism in securities fraud. She claims that civil penalties are inadequate when it comes to securities fraud violation, because the fraudsters are inherently recidivist. According to Professor Barnard, perpetrators of securities fraud are hard-wired to scam, swindle, rip off, and generally defraud investors. Among other things, Professor Barnard has called for the creation of a SEC Recidivist Task Force. (See, Securities Fraud Professionals, Jayne W. Barnard, July 2007). Professor Barnard's paper can be obtained at www.ssrn.com.
THE HAYES LAW FIRM, www.dhayeslaw.com, phone number: 1-866-332-3567