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Monday, August 02, 2004

Morgan Stanley and Washington State Make Amends

by: Theresa Sim

Morgan Stanley and Washington state regulators are finally putting a messy situation behind them. The two agreed to settle regulators' charges that Morgan Stanley brokers offered inappropriate advice to their clients. Morgan Stanley will pay $200,000 and revise policies.

The Washington state Securities Division of the Department of Financial Institutions originally filed
charges in early November alleging that brokers Arun Sardana and Michael Moriarty told clients to sell Microsoft options and purchase risky high technology stocks. The regulators also named the brokers' supervisors Lorenzo Ascoli in their charges.

Morgan Stanley and Washington state regulators attempted to negotiate a side agreement, which the regulators subsequently abandoned after being informed that it was not enforceable by the state's attorney general. Morgan Stanley then countersued the state based for breaching the agreement.

It was unclear whether the terms of the final settlement were harsher than the side agreement.

A Securities Division spokesperson did not immediately return a call seeking comment.

"Negotiating side agreements instead of enforcement orders is a major exception to our approach," stated Department of Financial Institutions Director Helen Howell. "We would have preferred taking stronger action against Morgan Stanley. Unfortunately, the management of our securities division at the time proceeded down this path. At a minimum, the terms of a regulatory agency’s agreements must be clearly enforceable and available to the public."

During the course of the case, Securities Division Director Deborah Bortner was fired over the side settlement. Bortner, in turn, accused Howell of political grandstanding.

Morgan Stanley will pay a total of $200,000 -- $100,000 directly to the Securities Division to cover legal costs, $25,000 to a Microsoft employee and former client of the brokers, and $75,000 to a non-profit called the Investor Protection Trust.

Morgan Stanley neither admitted nor denied wrongdoing in reaching the agreement.

As part of the agreement, Morgan Stanley agreed to provide Washington advisors with training on margin loans and equity concentrations and make the training available to advisors nationwide. The company will also provide additional tools for supervisors to on similar topics.  

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