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November 19, 2003 at 07:00 PM
Nov. 17, 2003 — The Securities and Exchange Commission said it instituted and simultaneously settled an enforcement action against Morgan Stanley (MWD) for “failing to provide customers important information relating to their purchases of mutual fund shares.” As part of the settlement, Morgan Stanley will pay a total of $50 million in disgorgement and penalties, all of which will be placed in a Fair Fund for distribution to customers who purchased “preferred” fund shares from January 1, 2000 through the present.
Morgan Stanley agreed to settle this matter, without admitting or denying the findings.
The SEC explained that this particular inquiry uncovered two distinct, firm-wide disclosure failures by Morgan Stanley. The first related to Morgan Stanley’s “Partners Program” and its predecessor, in which a select group of mutual fund complexes paid Morgan Stanley substantial fees for preferred marketing of their funds. To incentivize its sales force to recommend the purchase of shares in these “preferred” funds, Morgan Stanley paid increased compensation to individual registered representatives and branch managers on sales of those funds’ shares. The fund complexes paid these fees in cash or in the form of portfolio brokerage commissions.
