Morgan Stanley Smith Barney LLC has agreed to pay a $15 million penalty to settle Securities and Exchange Commission charges for failing to prevent four financial advisors from stealing millions in client funds, the SEC announced Monday.
What Happened: Morgan Stanley‘s MS wealth management division, which underwent a name change from Morgan Stanley Smith Barney to Morgan Stanley Wealth Management in 2012, faced scrutiny over its supervisory practices spanning from 2015 to 2022.
The SEC’s investigation revealed the firm lacked adequate policies to detect unauthorized transfers from client accounts, particularly through Automated Clearing House payments and specific cash wire transfers.
“Safeguarding investor assets is a fundamental duty of every financial services firm,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, noting that Morgan Stanley’s policy failures put numerous client accounts at “significant risk of harm.”
Why It Matters: The investigation found that until December 2022, the firm had no screening process to identify when financial advisors made ACH payments to accounts bearing their own names. This gap enabled advisors to make hundreds of unauthorized transfers to pay their personal credit card bills.
The firm has already compensated affected clients for their losses and agreed to hire a compliance consultant to review its third-party cash disbursement procedures.
The settlement includes a cease-and-desist order and censure. The SEC’s investigation was led by teams from both San Francisco and New York regional offices.
Price Action: Morgan Stanley closed at $128.58 on Monday, down $1.38, or 1.06%, for the day. In after-hours trading, the stock gained 0.17%. Year to date, Morgan Stanley’s stock has surged by 36.93%.
According to data from Benzinga Pro, Morgan Stanley has a consensus price target of $111.72 from 24 analysts, with a high of $142 and a low of $79.15. The average price target from the three most recent ratings from JP Morgan, Keefe, Bruyette & Woods, and HSBC, is $124.33, implying a 3.47% downside.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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