Morgan Stanley agreed Wednesday to pay a $4 million penalty to the Securities and Exchange Commission for allowing a rogue trader to engage in fraudulent trading of Apple stock.
The SEC says that Morgan Stanley & Co. LLC, which offers institutional customers direct market access through an electronic trading desk, failed to have the risk management controls necessary to prevent the rogue trader, David Miller of Rockville Centre, N.Y., from entering orders that exceeded pre-set trading thresholds.
The trader exploited the market access and, without Morgan Stanley’s knowledge, committed a fraud that eventually shuttered the firm, Rochdale Securities LLC, where he worked. The SEC and criminal authorities have since charged Rockville with fraud, and he has been sentenced to 30 months in prison.
The market access rule requires broker-dealers to have adequate risk controls in place before providing customers with access to the markets.
Morgan Stanley said in a Thursday statement that it has “updated its written procedures to address the issue identified in the SEC’s Order and is pleased to have this matter behind it.’’
In late November, Los Angeles-based broker-dealer Wedbush Securities and two of its top officials agreed to settle a pending SEC case for market access violations. Wedbush Securities settled by admitting wrongdoing, paying a $2.44 million penalty and retaining an independent consultant.
The Financial Industry Regulatory Authority announced in August that it had filed a complaint against Wedbush Securities for systemic supervisory and anti-money laundering violations in connection with providing direct market access and sponsored access to broker-dealers and nonregistered market participants. That FINRA complaint is pending.