The Financial Industry Regulatory Authority announced that it has fined Morgan Stanley & Co. US$3 million — and ordered it to pay more than US$4.2 million in restitution to 90 retirees – to resolve charges that its supervisory system failed to detect and prevent brokers from persuading workers to take early retirement based upon unrealistic promises of consistently high investment returns and by espousing unsuitable investment strategies.

FINRA found that Morgan Stanley failed to reasonably supervise two former registered representatives in its Rochester, N.Y. branch. One of the reps has been permanently barred from the securities industry for committing numerous violations of FINRA rules, while the regulator filed a formal disciplinary complaint against the other today (that case has not been heard, and none of the allegations have been proven).

The firm has been ordered to pay restitution to 90 of their former customers who sustained losses, and it has previously settled with 101 other customers of those brokers. In settling the cases, Morgan Stanley, one of the accused reps, and the branch manager, neither admitted nor denied the findings, but consented to the entry of FINRA’s findings.

“Protecting investors who have retired or are considering retirement has been one of FINRA’s top priorities,” said Susan Merrill, executive vice president and chief of enforcement. “Brokerage firms and brokers who serve investors considering retirement must ensure that their customers are given suitable investment recommendations based upon reasonable assumptions of market performance and are given thorough disclosure of investment risks. The supervisory failures of Morgan Stanley and its management led to losses suffered by customers at a vulnerable time in their lives – retirement – which could have been avoided.”

IE