Late last month, the SEC announced the institution and simultaneous settlement of an enforcement action against Morgan Stanley (Morgan Stanley & Co. Incorporated and Morgan Stanley DW Inc.). The SEC action alleged that Morgan Stanley failed to maintain and enforce adequate written policies and procedures to prevent the misuse of insider information in its possession.
According to the SEC, 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. The SEC also indicated that Morgan Stanley's written policies failed to provide adequate guidance to Morgan Stanley personnel charged with conducting surveillance, and the company employed inadequate controls with respect to certain aspects of its Watch List (companies about whom Morgan Stanley was in possession of material non-public information).
As part of the settlement, Morgan Stanley agreed, without admitting or denying the Commission's findings, to pay a $10 million penalty. The order also requires Morgan Stanley to retain an independent consultant to conduct a comprehensive review of the firm's policies, practices, and procedures to prevent the misuse of material non-public information, and to conduct a comprehensive review of proposed methodologies and procedures for its retrospective surveillance of trading in all accounts and all securities that should have been reviewed over the four years prior to the date of the issuance of this order.
It is great that the SEC discovered the lapses, Morgan Stanley cooperated with the SEC once the lapses were discovered, a substantial fine was imposed, and an independent consultant is being utilized. But I want more. Instead of "not admitting or denying any wrongdoing", I wish Morgan Stanley had issued a simple statement to the effect that "We were wrong, and we're sorry."
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