NASD Fines Morgan Stanley $100,000 For Municipal Bond Disclosure Violations
Washington, D.C. – NASD announced today that it sanctioned Morgan Stanley DW Inc. for failing to disclose to purchasers of municipal bonds that those bonds could be called prior their stated maturity dates, which could result in losses to the investors. Morgan Stanley’s failure to disclose the call feature violates Municipal Securities Rulemaking Board (MSRB) Rule G-15.
NASD censured the firm, imposed a fine of $100,000 and required the firm to offer to buy back bonds sold in up to 171 separate municipal bond transactions. Morgan Stanley has paid approximately $211,510 in restitution to customers since the NASD investigation began.
Early in NASD’s investigation into this matter, Morgan Stanley failed to respond in a timely way to requests for information, resulting in a second disciplinary action that included a censure and a $25,000 fine.
“Municipal bond investors are entitled to receive all critical information about the bonds they are purchasing, especially call features which can impact the total return the investor expects,” said NASD Vice Chairman Mary L. Schapiro. “As a result of today’s enforcement action, those investors who were or who may be harmed by Morgan Stanley’s violations will be compensated.”
MSRB Rules require broker-dealers who sell bonds that can be redeemed, or “called,” prior to maturity to provide the investor with a written disclosure, typically in the written purchase confirmation. NASD found that from 1997 through 2002, Morgan Stanley failed to disclose the existence of the call feature in confirmations for 258 municipal bond purchase transactions involving 133 escrowed-to-maturity bond issues.
Several bonds matured as scheduled without being called, resulting in no loss to investors. Other bonds were called before their stated maturity, resulting in the firm’s payment of restitution to customers for losses from these early redemptions. Still other bonds have not
yet matured and have not been called. Morgan Stanley will advise those purchasers of the call feature and offer to these investors the opportunity to sell the bonds back to the firm.
In agreeing to these sanctions, Morgan Stanley neither admitted nor denied the allegations.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2003, members of the public used this service to conduct more than 2.8 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.