Morgan Stanley & Company Inc. on Wednesday agreed to pay nearly $8 million to settle federal fraud charges stemming from its alleged failure to get retail stock investors the best prices possible on more than 1 million over-the-counter transactions.
Over a roughly three-year period, Morgan Stanley’s automated trading system delayed the execution of orders and altered transaction prices — to the company’s financial benefit — without telling investors, the Securities and Exchange Commission said in announcing its settlement with the investment bank.
Those actions affected more than 1.2 million trades valued at about $8 billion, and the financial services firm earned more than $5.9 million in revenue through the undisclosed changes. The alleged fraud took place between Oct. 24, 2001 and Dec. 8, 2004.
“By recklessly programming its order execution system to receive amounts that should have gone to retail customers, Morgan Stanley violated its duty of best execution and defrauded its customers,” Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, said in a release. “Broker-dealers must be diligent in their efforts to seek the most favorable terms for their customers’ orders.”
Morgan Stanley did not admit or deny the SEC’s findings. Spokeswoman Mary Claire Delaney said the company was pleased with the settlement and “has corrected the programming issues, established new internal controls and a process for client reimbursement.”
The nearly $8 million settlement includes reimbursing the more than $5.9 million in ill-gotten revenue, prejudgment interest of $507,978, and a civil money penalty of $1.5 million.
Shares of New York-based Morgan Stanley added 40 cents to $86.05 Wednesday.