Morgan Stanley pays $100,000 to NJ Securities Regulator

Thursday, August 1st, 2013

Morgan Stanley consented to pay the New Jersey Bureau of Securities $100,000 to resolve an investigation involving the improper sale of non-traditional Exchange Traded Funds (ETF)

According to the Consent Order, between 2007 and 2009 Morgan Stanley not only failed to provided adequate training to their brokers on non-traditional ETFs, they failed to implement a system to supervise sales. As a result, some brokers sold non-traditional ETF’s by soliciting to unsuitable investors.

Without admitting or denying the findings of fact and conclusions of law, Morgan Stanley consented to the Bureaus conclusion that their conduct not only constitutes a “failure to reasonably supervise” but also constitutes as “dishonest and unethical conduct” pursuant to the New Jersey Securities Act.

According to the New Jersey Bureau of Securities, Morgan Stanley agreed to pay $65,000 in civil penalties, $25,000 for reimbursement of the Bureau’s investigative costs and $10,000 to fund the Bureau’s investor education program. Morgan Stanley previously paid $96,940.34 in restitution to New Jersey investors.
An ETF is a pool of securities and other assets that is traded on stock exchanges, much in the way that stocks are. Most ETFs are created to attempt to replicate the performance of an index, such as the S&P 500, and do so by either holding the same securities as the index or a sample of the securities in the index.

Non-traditional ETFs are much more complex, and may utilize additional investment strategies. A leveraged ETF seeks to deliver multiples of the daily performance of its index, while an inverse ETF seeks to deliver the opposite of the daily performance of its index. Some ETFs are both leveraged and inverse, seeking to deliver multiples of the opposite performance of the index it tracks. These non-traditional ETFs can be used to either profit or hedge against down markets.

The Trouble with non-traditional ETFs is that their value is adjusted daily, this makes tracking their performance difficult and easily subject to error. These complex and high risk products are arguably unsuitable for many investors.

Brokerage firms have a fiduciary duty to make investment recommendations that are in line with a clients age, net worth, financial objectives, risk tolerance and investment experience. Brokerage firms, such as Morgan Stanley, that sell investment products that are not suitable for a particular investor can be held liable for investment losses.

If you invested in a non-traditional ETFs and would like to discuss your litigation options, please call the attorneys of The White Law Group, at (312)238-9650 for a free consultation.

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on the firm, visit http://www.whitesecuritieslaw.com.

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