Morgan Stanley paying $500K in settlement with SEC
WASHINGTON — Morgan Stanley on Monday 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.
The Securities and Exchange Commission announced the agreement with the big Wall Street brokerage firm, which did not admit or deny wrongdoing but did agree 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 in which it helped clients develop investment objectives.
The SEC also charged William Keith Phillips, a former investment adviser in Morgan Stanley’s Nashville, Tenn., branch office. That case is pending. Through his attorney, Phillips disputed the SEC’s allegations.
“Mr. Phillips denies any impropriety and he does intend to vigorously contest this,” said his attorney Ron Harris.
Phillips depended on Morgan Stanley’s legal and compliance personnel to ensure that proper disclosures were made and does not believe his actions violated SEC rules, Harris said in a telephone interview.
The alleged misconduct occurred from 2000 to early 2006, the SEC said. Contrary to disclosures to clients, Phillips recommended some money management firms that had not been approved to participate in Morgan Stanley’s advisory program.
“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,” Scott Friestad, the associated director of the SEC’s enforcement division, said in a statement.
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 Morgan Stanley and him, the SEC said. The New York-based company and Phillips failed to disclose to clients the potential conflict of interest.
“Morgan Stanley takes its supervisory responsibilities extremely seriously, and is pleased to settle this matter,” company spokeswoman Christine Pollak said in a statement. Phillips “is no longer employed here and we have since strengthened our policies and procedures around the marketing of investment advisory services.”
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