Morgan Stanley to Pay $13 Million Over UIT Supervision

By Dick Streuly 

Wall Street's self-regulator ordered Morgan Stanley to pay $13 million in fines and restitution to clients for failing to properly supervise trades that increased charges and fees to customers of certain investment funds.

The Financial Industry Regulatory Authority said Monday that the investment bank provided insufficient guidance to its staff on how to detect unsuitable short-term trades of unit investment trusts, or UITs.

From January 2012 through June 2015, Morgan Stanley representatives advised thousands of customers to sell their UITs before their maturity date and roll their investment into a new trust, according to the regulator.

A representative from the bank said it is pleased to have resolved this matter and to have been recognized by Finra for its cooperation.

By selling their UIT position before the maturity date and then rolling the funds over into a new trust, clients may pay higher sale charges over time, Finra said.

UITs are a type of investment fund that offers units in a portfolio of securities. At the end of the trust's life, investors can receive cash equal to the net asset value of the units or they can roll the current value of their investments into another trust.

Finra fined Morgan Stanley $3.25 million, while the bank will have to pay about $9.78 million in restitution to more than 3,000 customers.

"Due to the long-term nature of UITs, their structure, and upfront costs, short-term trading of UITs may be improper and raises suitability concerns," said Susan Schroeder, Finra executive vice president and head of enforcement.

In settling the investigation, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of Finra's findings.

(END) Dow Jones Newswires

September 25, 2017 15:02 ET (19:02 GMT)

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