Morgan Stanley To Pay $50 Million Fine Over Mutual Fund Allegations

by Glen Shapiro, LawAndTax-News.com, New York

19 November 2003

It emerged this week that financial services firm, Morgan Stanley has agreed to pay a $50 million fine over charges that it pushed investors towards certain 'preferred' mutual funds in exchange for commission payments from the companies which offered them.

Half of this sum represents returned profits and interest, and the other half is a civil penalty. However, according to reports, all of the money will go into a fund to be distributed to investors who bought the funds in question between January 2000 and the present day.

Speaking following the settlement agreement, SEC enforcement director, Stephen Cutler explained that:

"When customers purchase mutual funds, they should understand the nature and extent of any conflicts of interest that may affect the transaction."

Although Morgan Stanley did not admit culpability with regard to the charges of failing to disclose the payments from mutual fund firms, in a statement, Philip J. Purcell, the company's chairman and CEO, announced that:

"I regret that some of our sales and disclosure practices have been found inadequate. We take this most seriously because it strains the bonds we have with our clients and our financial advisers."

In addition to the fine, Morgan Stanley has agreed to disclose its practices both on its website and in investor documentation, to hire an independent consultant to conduct a review of its practices, and to stop accepting the disputed brokerage payments.

Additionally, for investors who purchased more than $100,000 worth of the mutual fund shares in question, the firm has announced that it will convert them to a class of shares with lower fee structures.

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