More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Morgan Stanley (MS), which had sought a court order to block Singaporean investors from bringing suit outside the country for losses of about $155 million on synthetic collateralized debt obligations, was told by a New York judge Monday that it cannot do so, according to Bloomberg. In a separate case, the investment bank said Tuesday that it had reached a settlement regarding credit default swap protection purchased from MBIA.
As a result of the settlement, Morgan Stanley will record a pre-tax loss this quarter of about $1.2 billion after-tax. The bank also will reduce its level of risk-weighted assets, which should free up some $5 billion of capital as stipulated by the proposed Basel III regulatory framework.
“It's critical that we reposition for the new regulatory environment and do so quickly,” said Morgan Stanley President and CEO James Gorman (left) in a statement. “A top priority for 2011 was to address this large outstanding legacy exposure and this settlement is consistent with our efforts to build capital and de-risk the balance sheet. Putting this behind us removes earnings volatility and meaningfully improves our pro forma Tier 1 Common ratio under Basel III."
In the other matter, U.S. District Judge Leonard Sand called the New York-based bank’s attempt to stop investors harassment, according to Bloomberg, and granted the request by investors, including the Singapore Government Staff Credit Cooperative Society Ltd., to stop Morgan Stanley from seeking a Singapore High Court order.
According to the lawsuit, filed in October 2010, several Morgan Stanley units created a “classic bait and switch scheme secretly designed to benefit Morgan Stanley” at customers’ expense. The investors say Morgan Stanley didn’t tell them it was a counterparty to the agreements—which meant that for every dollar the investors lost, Morgan Stanley gained a dollar. The plaintiffs seek to represent a class of all investors who bought Pinnacle Notes from Aug. 1, 2006, to the end of 2007.
Hong Kong-based spokesman Nick Footitt told Bloomberg that Morgan Stanley disagrees with the ruling, and added that its Singapore court action was entirely appropriate. “This dispute involved plaintiffs who are all based in Singapore, who purchased notes in Singapore, and who contractually agreed to the exclusive jurisdiction of the Singapore courts,” Footitt said in the Bloomberg report.
The bank tried to have the suit thrown out because the Monetary Authority of Singapore investigated the sale of structured financial
Sand had dismissed some investors’ claims in October, but permitted the rest of the case to go forward. A month later, Morgan Stanley sought an order blocking investors from pursuing the case from the Singapore court.
In his ruling, Sand said of the bank’s action, “Rather than availing themselves of the remedies available here, defendants are attempting to require the plaintiffs to begin anew in Singapore.” He also denied the New York-based bank’s request that he certify his October decision for pretrial appeal.
Morgan Stanley had about 17,300 advisors as of Sept 30. Its stock traded up about 2% Tuesday to $15.75 per share.