Morgan Stanley to Pay $15M Over Advisors Who Stole Millions From Clients: SEC

These ACH payments, the order states, “were typically to pay the FA’s credit card bill or to transfer funds to the FA’s account at an online payment application.”

“Safeguarding investor assets is a fundamental duty of every financial services firm, but MSSB’s supervisory and compliance policy failures let its financial advisors make hundreds of unauthorized transfers from their customer and client accounts and put many other such accounts at significant risk of harm,” said Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement in a statement.

“However, today’s resolution also takes into account the firm’s several self-reports to, and substantial cooperation with, the Commission staff and its remedial efforts, including compensating the financial advisors’ victims and retaining a compliance consultant to conduct a comprehensive review of the relevant policies and procedures.”

In addition, from October 2015 to at least February 2021, Morgan Stanley Smith Barney “failed to implement policies and procedures reasonably designed to prevent and detect misappropriation by its FAs using unauthorized cash wire transfers from multiple unrelated customer or client accounts of the same FA to the same third-party external account,” the order states.

“Although Morgan Stanley Smith Barney understood such activity was a red flag and in 2015 implemented a third-party fraud detection software system that Morgan Stanley Smith Barney mistakenly believed would, among other things, monitor for such activity, the system had not in fact been designed to detect when such patterns of wire activity had occurred,” the order states.

Moreover, Morgan Stanley Smith Barney “did not perform testing to validate the use of the system for that purpose at any time over the course of the next five years,” the SEC states. “Morgan Stanley Smith Barney’s failure reasonably to monitor for this risk allowed Carter and Rodriguez to misappropriate from the Morgan Stanley Smith Barney accounts of their customers and clients without detection.”

Morgan Stanley said Monday in a statement that “these were isolated events, each of which occurred several years ago. We take these incidents very seriously and have since enhanced our control framework, working in conjunction with an outside expert. We pride ourselves on putting clients first, and in each instance, when we learned of the wrongdoing, we conducted an internal investigation, terminated the wrongdoers, reported them to the proper authorities and worked with affected clients to compensate them for any harm.”