Morgan Stanley Lawsuits

Breaking News: Morgan, Merrill Face Lawsuits Over Annuities

Morgan Stanley Subpoenaed Over Annuity Sales

NASD Investigates Morgan Stanley Regarding Fee-Based Brokerage Accounts

Between June 1, 2003 and August 31, 2004, Morgan Stanley violated the law when it sold customers its registered offerings without delivering prospectuses to them. Prospectuses are important documents that discuss some of the risks associated with particular investments.

Customers who purchased investments requiring a prospectus will be entitled to immediate rescission (cancellation) of those investments, per Morgan Stanley's agreement.

Morgan Stanley subpoenaed over annuities Regulator says the brokerage firm has not responded after request for information sent on Jan. 10.
January 20, 2005

BOSTON (Reuters) - Massachusetts securities regulator William Galvin has subpoenaed Wall Street brokerage firm Morgan Stanley in a probe of the company's sale of variable annuities, a spokesman said on Thursday.

The request for information was sent to Morgan Stanley on Jan. 10, but Galvin has not received a response from the brokerage firm yet.

"We're looking for documents relating to the sale of variable annuity products," said Brian McNiff, a spokesman for Galvin. "There might have been practices where brokers failed to disclose payments received to sell variable annuities."

Morgan Stanley would not comment on Galvin's request, but spokeswoman Andrea Slattery said the firm was "confident that our practices in this area are appropriate and have been properly disclosed."

McNiff said Galvin had subpoenaed other companies but would not comment further

NYSE Regulation Announces a $19 Million Agreement with Morgan Stanley Citing Failure to Deliver Customer Prospectuses and Other Supervisory and Operational Failures

NYSE Press Reslease

NYSE Regulation confirmed an agreement in principle with Morgan Stanley to settle a disciplinary action with a censure and $19 million fine for failure to deliver prospectuses to customers in registered offerings, as well as other significant supervisory and operational failures. The firm has also agreed to make an offer of rescission to its customers who failed to receive prospectuses from June 1, 2003 through Aug. 31, 2004.

Among other matters, the agreement covers systems deficiencies that resulted in inaccurate reporting of certain program trading information, short sale violations, failures to fingerprint new employees to ensure that they were not subject to a statutory disqualification; and failure to timely file Exchange Forms RE-3. With regard to several of the supervisory and operational failures, the firm has been the subject of previous disciplinary action by the Exchange. The agreement also includes the firm’s failure to supervise two former employees who misappropriated a total of approximately $60 million from the firm and its customers. These individuals are out of the industry and Morgan Stanley customers have been reimbursed.

The supervisory and operational failings at the firm impacted on several business areas and went undetected for substantial periods of time.

"Operational failures and supervisory lapses are a dangerous combination, as demonstrated by this case,” said NYSE Regulation Executive Vice President of Enforcement Susan Merrill. “We're issuing a wake-up call for member firms to take meticulous inventory of their systems and procedures to ensure they have strict controls designed to protect the investing public. We do want to credit Morgan Stanley for its quick disclosure to NYSE Regulation of the prospectus delivery matter and its forthright commitment to provide immediate rescission to its customers."

NYSE Seeks Clarity on Prospectus Lapses

By MICHAEL J. MARTINEZ, AP Business Writer, November 16, 2004

NEW YORK - The New York Stock Exchange (news - web sites) is giving Wall Street firms until Friday to come clean over transactions made with investors who did not receive a prospectus beforehand, according to two sources familiar with the matter.

Bypassing the brokerage houses' regulatory and legal departments, NYSE chief of enforcement Susan Merrill wrote directly to the chief executives or chief operating officers of a number of Wall Street firms last month, the sources told The Associated Press, speaking on condition of anonymity.

Lehman Brothers and Goldman Sachs were among the firms to receive letters, sources confirmed, though it was not immediately known how many letters were sent. The letters to top executives were designed to spur faster action and further the exchange's new and tougher policy on enforcement. By admitting any lapses, the firms may receive leniency in fines and settlement terms.

A spokesman for the NYSE had no comment on the letters, which were first reported in The Wall Street Journal on Tuesday. The firms identified as receiving letters also had no immediate comment.

According to Securities and Exchange Commission (news - web sites) and NYSE regulations, brokerage firms must send prospectuses to potential investors before stock or bond offerings are made_ or must at least make an effort to get the information in investors' hands around the same time a deal is struck and money changes hands.

Most Wall Street firms have conducted reviews of whether their investors and clients received the appropriate prospectuses after Morgan Stanley admitted earlier this year that it failed to send materials to a large number of clients who then invested. Despite the admission and Morgan Stanley's cooperation, the NYSE fined the company $19 million for the prospectus lapses and other regulatory issues.

The unusually large fine, the biggest the NYSE had imposed in an investigation conducted solely by exchange regulators, is part of an overall effort to put teeth back into its regulatory division following the departure of former chairman and chief executive Richard Grasso last year.

The NYSE's new chief regulatory officer, Richard Ketchum, answers directly to a board committee, rather than to chief executive John Thain. Previously, Grasso had the final say on all regulatory matters, and the NYSE's regulatory arm was criticized for its low fines and ineffectiveness.

Morgan Stanley said in a recent SEC filing that it set aside about $95 million to cover the $19 million fine as well as reimbursements from investors who felt they were not properly informed before they invested. Those who took losses can be reimbursed for those as well. Morgan Stanley said the costs could top $150 million, though it did not expect all of the customers who did not receive prospectuses to seek reimbursement.

Big Stick at the Big Board

Excerpted from Business Week's coverage

Led by new top cop Richard G. Ketchum, the NYSE's in-house regulators are on a mission to restore the exchange's credibility

Last year, Morgan Stanley voluntarily fessed up to the New York Stock Exchange that its stock-trading program had suffered technical glitches. Because it was up front, Big Board regulators say the firm asked them to cut it some slack. Instead, in December the brokerage firm was fined $800,000.

The Wall Street firm got an even bigger shock in September. Not only had Morgan Stanley failed to fix the trading system but it also had hit new supervisory and operational snags. Among other things, it omitted to send out prospectuses to about 100,000 clients for some 3,000 different investments.

So NYSE regulators slapped it with a $19 million fine, breaking the record set when Drexel Burnham Lambert was hit up for $2.5 million in 1992. Morgan Stanley, which agreed to the penalty in principle, said it had reported the problems and fixed them.

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