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SEC charges Morgan Stanley and ex-adviser with misleading clients

Morgan Stanley has agreed to pay a $500,000 penalty to settle charges that the firm and a former investment adviser misled clients about the money managers recommended to them and for failing to disclose conflicts of interest, the Securities and Exchange Commission announced today.

Morgan Stanley has agreed to pay a $500,000 penalty to settle charges that the firm and a former investment adviser misled clients about the money managers recommended to them and for failing to disclose conflicts of interest, the Securities and Exchange Commission announced today.
According to the SEC, Morgan Stanley of New York breached its fiduciary duty to clients of its Nashville, Tenn., office by making “material misstatements about a program through which the firm assigned clients in developing investment objectives and in selecting properly vetted money managers” over a six-year period through April 2006.
The recommendations were contrary to the firm’s disclosures, the SEC said.
The SEC accused Morgan Stanley of recommending managers who had not been approved for participation in the firm’s advisory programs and had not been subject to its due-diligence review.
“Morgan Stanley said one thing and did another when recommending money managers who had not been properly vetted by the firm,” Scott W. Friestad, associate director of SEC’s enforcement division, said in the statement.
At the same time, Morgan Stanley and former financial adviser William Keith Phillips, who worked out of the Nashville office, but left the firm in 2006, received brokerage commissions or fees from unapproved managers, the SEC stated.
In a separate administrative proceeding that continues against Mr. Phillips, the SEC alleged that he aided and abetted and/or caused Morgan Stanley’s violations.
“Mr. Phillips denies any impropriety and intends to vigorously contest it,” said attorney Ron Harris.
He and Aubrey Harwell Jr., both partners in the Nashville, Tenn.-based Neal & Harwell PLC, are representing Mr. Phillips.
Once he is served with the SEC order, Mr. Phillips will have 20 days to respond, Mr. Harris said.
“Morgan Stanley takes its supervisory responsibilities extremely seriously and is pleased to settle this matter that occurred a number of years ago,” said Christy Pollak, spokeswoman for Morgan Stanley.
“The financial adviser is no longer employed here, and we have since strengthened our policies and procedures around the marketing of investment advisory services,” she said.