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Compliance Newsflashes: Morgan Stanley Ponies Up Another $10 Million, and more

Morgan Stanley Settles With the SEC for Failing to Monitor Employee Accounts, Actimize and Albridge Develop Broker Compliance Solution, Tilney Investment Management Gets Compliance Help From Network Defence

WS&T Staff

June 29, 2006

Morgan Stanley Pays SEC $10 Mil. for Not Monitoring for Insider Trading

Morgan Stanley has agreed to pay the Securities and Exchange Commission (SEC) $10 million as penalty for failing to monitor employee trading activity for the abuse of insider information. Despite the legal requirements to do so, Morgan Stanley for years failed to maintain and enforce adequate written policies and procedures to prevent the misuse of material nonpublic information. Due to a systemic breakdown in this critical compliance function, Morgan Stanley failed to conduct any surveillance of a massive number of employee accounts held at the firm and trading in certain securities in those and other accounts. Moreover, according to the SEC, Morgan Stanley's written policies failed to provide adequate guidance to those personnel charged with conducting surveillance.

"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 release. "Firms must devote sufficient resources and attention to this critical area. Neglecting this compliance function is not an option."

The SEC reports that among the violations, 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 the firm.

Once the initial problems in surveillance were discovered, Morgan Stanley conducted a review of its surveillance processes and began to take steps to correct the identified deficiencies. Morgan Stanley also cooperated with the staff in its investigation and timely reported its findings as additional surveillance issues were identified.

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