Morgan Stanley to pay $3.6 million penalty for failure to supervise adviser

SEC says firm did not have policies and procedures in place to prevent misuse of funds

Morgan Stanley has agreed to a settlement with the SEC in which it will pay a $3.6 million penalty for its failure to protect four advisory clients from the actions of one of its representatives, who misused or misappropriated approximately $7 million from the clients’ accounts.

The investment adviser representative, Barry F. Connell, made approximately 110 unauthorized transactions over a period of nearly a year. The firm has repaid the four advisory clients in full plus interest and has agreed to look into its procedures as part of its settlement, the Securities and Exchange Commission said in a release.

The SEC charged that the firm failed to have reasonably designed policies and procedures in place to prevent such activity from occurring.

Mr. Connell was discharged by Morgan Stanley in November 2016, based on “allegations regarding unauthorized withdrawals and transfers of funds from client’s household accounts to third-party payees, which appear to be for the benefit” of Mr. Connell, according to his BrokerCheck record.

The Financial Industry Regulatory Authority barred Mr. Connell in January 2017 after he failed to comply with a request for information about the allegations.

(More: Arbitrators award Morgan Stanley $6 million from former broker)