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 / Updated  / Source: Reuters
By Reuters

Morgan Stanley was charged with "dishonest and unethical conduct" by Massachusetts' top securities regulator on Monday for having run high-pressured sales contests in Massachusetts and Rhode Island.

REUTERS/Mike Blake/File Photo

Secretary of the Commonwealth William Galvin charged that Morgan Stanley brokers pushed so-called "securities based loans" to boost business by running contests that were prohibited by Morgan Stanley. He also charged that it took top executives nearly one year to discover the violation and that they still did not shut the contest down immediately.

"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.

Related: As Wells Fargo CEO Gets Roasting on Capitol Hill, Are Other Banks Complicit?

Morgan Stanley spokesman James Wiggins said complaint has no merit and that the company plans to defend itself vigorously. "The securities-based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent," Wiggins 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. The contest yielded results. Nearly three times as many SBL accounts were opened than in the previous year, adding $24 million in new loan balances, Galvin said.

But 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 for some time thereafter. A new contest was started in early 2015 and ran until April, 2015, Galvin said.

The charges come just a few weeks after Wells Fargo was fined $185 million for having fraudulently opened client accounts.