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Morgan Stanley Pays $3.6 Million Penalty In Connection to SEC Charges

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Morgan Stanley Smith BarneyPublicly available records provided by the Securities and Exchange Commission (SEC) and accessed on July 3, 2018 indicate that Morgan Stanley Smith Barney in connection to allegations it failed to protect against the misuse or misappropriation of client funds by its personnel. Fitapelli Kurta is interested in hearing from investors who have complaints regarding Morgan Stanley Smith Barney.

According to the SEC’s order, Morgan Stanley Smith Barney failed to maintain reasonably designed policies and procedures that would have prevented advisory represents from participating in the misuse or misappropriation of funds from customer accounts. The order states that from “at least 2009 until the present,” the firm allowed its investment adviser representatives as well as its registered representatives “to initiate third-party disbursements from client accounts of outgoing wire transfers and journals of up to $100,000 per day per account based on the FA’s attestation on an internal electronic form that the FA had received a verbal request from the client by phone or in-person and providing certain details about the request.”

Though the firm’s policies established certain reviews of disbursement requests, according to the SEC, these procedures “were not reasonably designed to detect or prevent such potential misconduct.” Among other things, the SEC alleges, these policies and procedures led in part to the firm’s failure to detect or to stop Barry Connell, one of the firm’s advisers, from engaging in the misuse or misappropriation of about “$7 million out of four advisory clients’ accounts in approximately 110 unauthorized transactions” over the course of almost a year. Mr. Connell allegedly misappropriated more than $5 million from customer accounts via these transactions “to fund his lavish lifestyle.” Morgan Stanley Smith Barney failed to detect for almost a year that these transactions were unauthorized, according to the order, and were alerted when “the defrauded clients” contacted the firm with inquiries about their funds.

Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office, said in a statement: “Investment advisers must view the safeguarding of client assets from misappropriation or misuse by their personnel as a critical aspect of investor protection… Today’s order finds that Morgan Stanley fell short of its obligations in this regard.”

The firm has consented to the SEC’s order without admitting to or denying the findings. That order includes a penalty of $3.6 million, “a censure, a cease-and-desist order, and undertakings related to the firm’s policies and procedures.” The firm has already repaid the four advisory clients affected by Mr. Connell’s alleged conduct, who is the subject of separate fraud charges.

If you or someone you know has lost money investing with Morgan Stanley Smith Barney, call Fitapelli Kurta at 877-238-4175 for a free consultation. You may be eligible to recoup your losses. Fitapelli Kurta accepts all cases on a contingency basis: we only get paid if and when you collect money. Time to file your claim may be limited, so we encourage you to avoid delay. Call 877-238-4175 now to speak to an attorney for free.