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Morgan stanley fined 50m pushing its funds Original Source Link: (May no longer be active)
http://www.delawareonline.com/newsjournal/business/2003/11/18morganstanleyis.htmlhttp://www.delawareonline.com/newsjournal/business/2003/11/18morganstanleyis.html
Morgan Stanley is fined $50 million
By ADAM GELLER
Associated Press
11/18/2003
NEW YORK -- Morgan Stanley agreed to pay a $50 million fine Monday to settle charges that it pushed investors toward certain mutual funds in order to gain millions more in commissions and did not disclose the incentives to clients.
Morgan Stanley is the second major financial company to settle with regulators in a widening mutual fund industry scandal that has stained a growing list of firms and dismayed many investors.
Charges leveled Monday by the Securities and Exchange Commission and the National Association of Securities Dealers allege Morgan Stanley steered clients toward "preferred" mutual funds in exchange for millions of dollars in commission payments from those fund companies. Morgan Stanley did not tell investors about the practice or the higher fees.
The arrangement constituted a "firm-wide failure" in Morgan Stanley's disclosure practices, according to the SEC.
"When customers purchase mutual funds, they should understand the nature and extent of any conflicts of interest that may affect the transaction," Stephen M. Cutler, the director of the SEC's division of enforcement, said in a written release.
At a news conference in Washington, D.C., Cutler said Morgan Stanley's "conduct here clearly crossed the line." Asked whether the SEC was considering charges against specific company executives, he would say only that the investigation continues.
The government is conducting a broad probe of the $7 trillion mutual fund business that has already resulted in the departures of executives at several large firms, including Strong Capital Management and Putnam Investments.
Charges against many of the firms center on their use of market timing - selective quick trades that skim profits from long-term shareholders.
Morgan Stanley, charged instead with failure to disclose improper payments from mutual fund firms, agreed to the settlement without officially admitting or denying the SEC's findings.
"I regret that some of our sales and disclosure practices have been found inadequate," Philip J. Purcell, Morgan Stanley's chairman and CEO, said in a statement. "We take this most seriously because it strains the bonds we have with our clients and our financial advisers."
The settlement calls for the company to pay $50 million - half of it returned profits and interest, the other half a civil penalty. The money will be placed in a fund to be distributed to investors who bought the "preferred" mutual fund shares from Jan. 1, 2000, to the present, the SEC said.
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