FINRA permanently barred a former FINRA-registered Morgan Stanley representative for circumventing company trading policy and for unethical conduct. The representative was charged with concealing trades of Venezuelan bonds, trading in which the firm had restricted due to regulatory, anti-money laundering and reputational risks. The representative's former sales assistant was also suspended for one year by FINRA and fined $10,000.
From May 2010 through March 2012, the representative concealed the prohibited trades by using the names of financial institutions without their knowledge or consent in order to make trades on behalf of third-party customers, some of whom were not approved to trade through Morgan Stanley. As a result, the representative was able to avoid compliance with Morgan Stanley's buy-side confirmation requirement. The requirement was instituted to ensure that bonds were not purchased as part of a currency conversion trade, a practice prohibited by Morgan Stanley. The sales assistant was charged with creating records containing false information about the prohibited trades.
According to FINRA, both the representative and the assistant violated FINRA Rules 4511, 3150 and 2010.
Commentary / Steven Lofchie
Few things are more dangerous to financial institutions than rogue employees. For example, Jérôme Kerviel cost Société Générale approximately 4.9 billion Euros. Joseph Jett's concealed trading arguably put Kidder Peabody out of business. While the current incident was very small-time by those standards, it should renew the lesson to firms of the importance of closely watching their own traders.
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