Morgan Stanley has agreed to pay $10 million to settle Securities and Exchange Commission charges that it failed to maintain and enforce adequate written policies and procedures to prevent insider trading over a number of years.
In its complaint, the investment banking giant was accused of failing to conduct any surveillance of trading in any employee accounts of securities of roughly 3,000 companies that had been placed on the firm’s watch list from at least 1999 to 2003.
Morgan Stanley generally places issuers on its watch list when the firm has inside information relating to that company.
“Establishing and enforcing adequate written policies and procedures to detect potential insider trading at securities firms is vital,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, in a statement. “Firms must devote sufficient resources and attention to this critical area. Neglecting this compliance function is not an option.”
Morgan Stanley & Co. Inc. and Morgan Stanley DW Inc., both of which are registered broker-dealers and investment advisers, agreed, without admitting or denying the Commission’s findings, to the entry of a Commission Order censuring them.
According to the SEC, from at least 2000 to 2004, Morgan Stanley failed to conduct any watch list surveillance of hundreds of thousands of employee and employee-related accounts to determine whether securities in those accounts had been purchased or sold on the basis of material nonpublic information.
The SEC also charged that from as early as 1997 until as late as 2005, Morgan Stanley failed to conduct any surveillance of trading in approximately 900 employee accounts held outside of Morgan Stanley and approximately 30,000 employee accounts held at Morgan Stanley that the firm failed to identify as held by employees.
According to the SEC, from at least 2001 until 2004, Morgan Stanley failed to conduct any surveillance required by its policies of certain types of securities traded in Morgan Stanley accounts including certain derivative securities, single stock futures, and equity options of issuers on Morgan Stanley’s watch list, the SEC also charged.
It also alleged that from at least 1997 to 2006, Morgan Stanley’s written policies failed to provide clear guidance about how watch list surveillance was to be conducted.
The SEC did give Morgan Stanley credit for taking steps to correct the surveillance problems once they were discovered, and for cooperating with the SEC staff.
Under the settlement, Morgan Stanley also must retain an independent consultant to conduct a comprehensive review of the firm’s policies, practices and procedures to prevent the misuse of inside information and to conduct a comprehensive review of the firm’s proposed methodologies and procedures for its surveillance of trading.