An investment bank agreed to settle FINRA charges concerning supervisory failures, namely inadequate supervision of certain short-term transactions involving unit investment trusts.
According to FINRA, Morgan Stanley Smith Barney LLC ("Morgan Stanley") representatives advised clients to sell unit investment trusts before maturity, rather than letting the holdings pay out at maturity. FINRA alleged that Morgan Stanley representatives would advise clients to sell early and "roll over" the proceeds into a new trust, resulting in additional sales-related fees being imposed on the clients. FINRA alleged that the firm did not properly train supervisors to identify improper short-term trading practices and failed to implement a system that allowed for the trades to be recognized and blocked before execution. As a result of the alleged misconduct, FINRA charged the firm with violations of FINRA Rules 3110 and 2010, and NASD Rule 2010.
Morgan Stanley agreed to pay (i) $3.25 million in fines and (ii) $9.78 million in restitution to affected customers.
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