WASHINGTON - The Financial Industry Regulatory Authority (FINRA)
announced today that it has fined Morgan Stanley Smith Barney, LLC
(Morgan Stanley) $650,000 and Scottrade, Inc. $300,000 for failing
to implement reasonable supervisory systems to monitor the
transmittal of customer funds to third-party accounts. Both firms
were cited for the weak supervisory systems by FINRA examination
teams in 2011, but neither took necessary steps to correct the
supervisory gaps.
Brad Bennett, Executive Vice President and Chief of Enforcement,
said, "Firms must have robust supervisory systems to monitor and
protect the movement of customer funds. Morgan Stanley and
Scottrade had been alerted to significant gaps in their systems by
FINRA staff, yet years went by before either firm implemented
sufficient corrective measures."
With regard to Morgan Stanley, FINRA found that from October
2008 to June 2013, three registered representatives in two
different branch offices converted a total of $494,400 from
thirteen customers by creating fraudulent wire transfer orders and
branch checks from the customers' accounts to third-party accounts.
For example, the representatives moved funds from multiple customer
accounts to their own personal bank accounts or to banks that held
the representative's mortgage.
FINRA found that Morgan Stanley failed to implement reasonable
supervisory systems and procedures to review and monitor
transmittals of customer funds through wire transfers from multiple
customer accounts to the same third-party accounts and outside
entities. The supervisory failures allowed the conversions to go
undetected.
FINRA also found that Scottrade failed to establish a reasonable
supervisory system to monitor for wires to third-party accounts.
From October 2011 to October 2013, Scottrade did not obtain any
customer confirmations for third-party wire transfers of less than
$200,000, and Scottrade failed to ensure that the appropriate
personnel obtained confirmations for third-party wire transfers of
between $200,000 and $500,000. During that period, the firm
processed over 17,000 third-party wire transfers totaling more than
$880 million.
In concluding these settlements, Morgan Stanley and Scottrade
neither admitted nor denied the charges, but consented to the entry
of FINRA's findings.
Investors can obtain more information about, and the
disciplinary record of, any FINRA-registered broker or brokerage
firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck
available at no charge. In 2014, members of the public used this
service to conduct 18.9 million reviews of broker or firm records.
Investors can access BrokerCheck at www.finra.org/brokercheck or by
calling (800) 289-9999. Investors may find copies of this
disciplinary action as well as other disciplinary documents in
FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the
largest independent regulator for all securities firms doing
business in the United States. FINRA is dedicated to investor
protection and market integrity through effective and efficient
regulation and complementary compliance and technology-based
services. FINRA touches virtually every aspect of the securities
business - from registering and educating all industry participants
to examining securities firms, writing rules, enforcing those rules
and the federal securities laws, and informing and educating the
investing public. In addition, FINRA provides surveillance and
other regulatory services for equities and options markets, as well
as trade reporting and other industry utilities. FINRA also
administers the largest dispute resolution forum for investors and
firms. For more information, please visit www.finra.org.
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