Securities giant Morgan Stanley will pay a $10 million fine to the Se curities and Exchange Commission after failing to maintain safeguards to prevent the misuse of inside information.
In a statement, the SEC said that despite the legal requirements to do so, Morgan Stanley failed to conduct any surveillance of a massive number of employee accounts at the firm for years. The SEC also said the firm's written policies failed to provide adequate guidance to personnel charged with misusing inside information.
"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 enforcement division, in a statement. "Firms must devote sufficient resources and attention to this critical area. Neglecting this compliance function is not an option."
Among the firm's specific problems, the SEC said that:
- From 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.
- From 1999 to 2003, Morgan Stanley failed to conduct any daily Watch List surveillance of trading in any accounts with respect to some or all of the securities of approximately 3,000 issuers that had been placed on the firm's Watch List.
- From as 1997 to 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.
Morgan Stanley neither admitted, nor denied, the allegations, but did agree to hire an independent consultant to conduct a review of the firm's policies, practices and procedures in order to refrain from future violations.
