Finra has reached a settlement with the firms Morgan Stanley Wealth Management and Scottrade Inc.
Morgan Stanley Wealth Management and Scottrade Inc. allegedly agreed to a settlement with FINRA over allegations that gaps in their compliance systems allowed brokers to improperly move funds into their own personal accounts without detection.
Morgan Stanley and Scottrade both agreed to the sanctions without admitting or denying the charges.
Brokers that circumvent firm polices are a cause for concern and constant viligance.
According to Finra’s complaint, the violations at Morgan Stanley occurred from June 2009 to November 2014. Finra states that Morgan Stanley failed to have “reasonable supervisory systems and written procedures” when it comes to transferring customer money to a third party account.
An example of negligence that Finra gave was that Morgan Stanley allegedly did not have adequate identification requirements for customer signatures authorizing third-party transfers.
The firm also allegedly failed to adequately review when there were multiple transfers of funds to the same third party account. It also allegedly had issues with a third-party service provider who mislabeled transfers, according to the complaint.
As a result, the complaint alleges that three brokers in two offices in Paramus, N.J., and Fort Lauderdale, Fla., were able to convert nearly $500,000 through fraudulent wire transfers and forged signatures.
Finra said all three brokers were terminated from Morgan Stanley when the violations were uncovered, and they have since been barred from the industry.
From 2011 to 2013, Scottrade had similar issues in failing to obtain customer confirmations for third-party wire transfers of less than $200,000, according to Finra.
Brokerage firms are required to properly supervise their agents and to ensure that they are complying with industry rules and standards. When they fail to do so, the firms can be responsible for the resulting losses.
The foregoing information has been provided by The White Law Group. The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.