Massachusetts charges Morgan Stanley with unethical conduct
Staff Writer |
Morgan Stanley was charged with "dishonest and unethical conduct" by Massachusetts' top securities regular for having pushed its brokers to sell loans to their clients.
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ecretary of the Commonwealth William Galvin alleges that the bank ran high-pressured sales contests in Massachusetts and Rhode Island where brokers could earn thousands of dollars for selling so-called "securities based loans." (SBLs)
The contests, designed to boost business, were officially prohibited by Morgan Stanley but turned out to be lucrative for the bank with the pace of loan origination tripling and adding $24 million in new loan balances, Galvin said.
Securities based loans let clients borrow against the value of their investment accounts but involve certain risks including the bank's ability to sell securities to repay the loan.
Galvin charges that Morgan Stanley executives were slow in discovering the improper sales contests, failed to shut them down immediately, and downplayed the risk associated with the SBLs.
"This complaint lays bare the culture at Morgan Stanley that bred the high pressure effort to cross sell banking products to its brokerage customers without regard for the fiduciary duty owed to the investor," Galvin said in a statement.
Thirty financial advisers working in five Morgan Stanley offices from Springfield, Massachusetts to Providence, Rhode Island joined in the contest that began in January, 2014, Galvin said.
The incentives were: $1,000 for 10 loans, $3,000 for 20 loans, and $5,000 for 30 loans, Galvin said, adding that performance was closely tracked by supervisors. Four years ago the bank shifted the way its advisers are paid, rewarding them for growing assets and loans.
Morgan Stanley's internal rules prohibited such contests, Galvin said, adding it took the bank's compliance and risk office until December 2014 to detect the contest and that it was not stopped until April, 2015, Galvin said. ■