Morgan
Stanley Smith Barney (MSSB) has agreed to pay a $15 million penalty to settle
Securities and Exchange Commission (SEC) charges related to alleged
supervisory failures that enabled financial advisors to steal millions from
client accounts through unauthorized transfers.

Morgan Stanley to Pay $15M
Fine Over Financial Advisors’ Client Fund Theft Claims

The SEC
investigation revealed that MSSB lacked adequate policies to prevent and detect
unauthorized third-party disbursements, including Automated Clearing House
(ACH) payments and specific patterns of wire transfers, from customer accounts.
Between May 2015 and July 2022, several MSSB advisors exploited these gaps to
make hundreds of unauthorized transfers for personal benefit.

Until
December 2022, the firm had no screening process to flag ACH payments where the
financial advisor’s name matched the payment beneficiary.

“Safeguarding
investor assets is a fundamental duty of every financial services firm, but
MSSB’s supervisory and compliance policy failures let its financial advisors
make hundreds of unauthorized transfers from their customer and client accounts
and put many other such accounts at significant risk of harm,” said Sanjay
Wadhwa, Acting Director of the SEC’s Division of Enforcement.

“However,
today’s resolution also takes into account the firm’s several self-reports to,
and substantial cooperation with, the Commission staff and its remedial
efforts, including compensating the financial advisors’ victims and retaining a
compliance consultant to conduct a comprehensive review of the relevant
policies and procedures.”

The
settlement includes a censure and requires MSSB to retain a compliance
consultant to review all third-party cash disbursement procedures. The firm has
already compensated affected clients for their losses.

This is not
the first fine for MSSB this year, as the Morgan Stanley’s unit paid a $1.6 million
fine to the Financial Industry Regulatory Authority (FINRA) in
February. According to the FINRA’s statement, the penalty arises from the
firm’s repeated failures to promptly resolve failed inter-dealer municipal
securities transactions and to take timely measures to secure physical
possession or control of municipal security positions exceeding 30 calendar
days.

SEC Charges Ian Bell

In a
separate case, the SEC has charged Ian G. Bell, with orchestrating a
sophisticated day-trading fraud scheme that targeted professional athletes and
other investors, amassing over $1.3 million in ill-gotten gains.

The scheme,
which operated from July 2020 to March 2023, ensnared at least 29 investors
through a web of deception that included fabricated trading performance reports
and false statements about investment returns. Bell allegedly exploited a
network of referrals, as satisfied investors unknowingly promoted his
fraudulent scheme to family and friends based on manipulated performance data.

“When
things sound too good to be true, they often are, which is why it is crucial
that investors research any firm or individual who is seeking to manage their
hard-earned money, even if they come recommended by friends of family,” said
Jason Burt, Regional Director of the SEC’s Denver office.

“As for
those individuals who are looking to follow in this defendant’s footsteps, know
that your odds of getting away with it are exceedingly low.”

In the fiscal
year 2024, SEC
was able to collect a record $8.2 billion in recoveries and fines. The
total amount jumped by 65.5% from $4.9 billion reported a year earlier.