The SEC has taken action against Morgan Stanley Smith Barney LLC (MSSB) for not doing enough to supervise its financial advisors, who stole millions of dollars from clients.
To resolve these charges, MSSB has agreed to pay a hefty $15 million fine and implement certain required changes.
According to the SEC, MSSB did not have proper policies in place to stop its financial advisors from illegally transferring money.
Specifically, the advisors used two methods—Automated Clearing House (ACH) payments and certain cash wire transfers—to move funds from clients’ accounts to their own pockets.
The SEC’s findings revealed that these advisors made hundreds of unauthorized transfers, taking money meant for clients or customers for their own use.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized that protecting investors’ assets is a basic responsibility of financial firms.
He stated, “MSSB’s failures in supervision and compliance allowed its financial advisors to make unauthorized transfers, putting many other accounts at risk.”
However, the resolution also acknowledges that MSSB cooperated with the SEC and took steps to make things right, including compensating the victims and hiring a compliance consultant to review its policies.
The SEC’s investigation found that until at least December 2022, MSSB lacked a policy to check ACH payment instructions for red flags.
For example, they didn’t screen payments where an advisor’s name matched the beneficiary, which led to numerous unauthorized transfers between May 2015 and July 2022.
These transfers often paid the advisors’ credit card bills or benefited them directly.
The SEC determined that MSSB violated key rules designed to protect investors and failed to adequately supervise four former financial advisors.
In response to the SEC’s findings, MSSB has consented to a cease-and-desist order, received a censure, and agreed to implement a compliance review of all cash disbursements from customer accounts.
They have also already settled with the affected clients to reimburse their losses.
This case was investigated by a team from the SEC’s San Francisco and New York offices, highlighting the importance of regulatory oversight in the financial industry.
The outcome serves as a reminder that financial firms must prioritize the protection of client assets to maintain trust and integrity in their operations.
As this situation develops, it will be crucial for MSSB to follow through on its commitments to improve compliance measures and restore confidence among its clients and the broader investing public.
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