Morgan Stanley Pays $3.3 Million in SEC Crackdown on Fee Arrangements

The SEC’s investigation found that MSIM–the primary investment advisor to The Malaysia Fund–represented to investors and the fund’s board of directors that it contracted a Malaysian-based sub-advisor to provide advice, research and assistance to MSIM for the benefit of the fund, which invests in equity securities of Malaysian companies. However, the SEC say, “the sub-advisor did not provide these purported advisory services, yet the fund’s board annually renewed the contract based on MSIM’s representations for more than a decade at a total cost of $1.845 million to investors.”

According to the SEC’s order, MSIM arranged The Malaysia Fund’s sub-advisory agreement with a subsidiary of AM Bank Group, one of the largest banking groups in Malaysia. “Despite the research and advisory agreement stating that the AM Bank Group subsidiary (AMMB) would provide MSIM with ‘investment advice, research and assistance, as [MSIM] shall from time to time reasonably request,” the SEC says it found that AMMB merely provided two monthly reports based on publicly available information that MSIM neither requested nor used in its management of the fund.

Furthermore, the SEC said, “MSIM’s oversight and involvement with AMMB during the relevant time period were wholly inadequate. MSIM had no written procedures specifically governing its oversight of sub-advisers, and did not have a procedure in place for reviewing work done by AMMB.”