NASD Fines Morgan Stanley $2.2 Million for Late Reporting, Firm Temporarily Suspended from Registering New Brokers
Washington, D.C.—NASD announced today that it has censured and fined Morgan Stanley DW Inc. $2.2 million for more than 1,800 late disclosures of reportable information about its brokers. The late reports concerned, among other things, customer complaints and disciplinary actions by regulators. NASD also charged Morgan Stanley for supervisory failures relating to the late filings.
In addition to ordering the fine, NASD prohibited Morgan Stanley from registering any new brokers for one week, required it to hire an independent consultant to assess the firm's supervisory systems and procedures in the reporting area, and imposed specific ongoing reporting obligations.
NASD concluded that the late filings by Morgan Stanley had delayed several NASD investigations. The late filings also may have hampered the investing public's ability to accurately assess the background of certain brokers through NASD's public disclosure program, BrokerCheck, and compromised the ability of state securities regulators to review applications from brokers changing firms.
"Every firm has a fundamental obligation to accurately and promptly file information about its brokers that NASD, other regulators and - most importantly - the investing public rely on to learn of potential misconduct," said NASD Vice Chairman Mary L. Schapiro. "Those obligations cannot be ignored, and negligence on the scale demonstrated in this case merits particularly strong sanctions."
Under NASD rules, after a securities firm hires a broker, it must ensure that information disclosed on the broker's application for registration (Form U4) is kept current in the Central Registration Depository (CRD). The firm must file amendments with NASD promptly to update the information on the form when significant events occur - including regulatory actions against the broker, customer complaints and settlements involving the broker, and criminal charges and convictions. Normally, the amendments must be filed within 30 days. If the reportable event involves a statutory disqualification, the event must be disclosed within 10 days. In addition, firms must notify NASD within 30 days of learning that information disclosed on a termination notice (Form U5) filed for a broker has become inaccurate or is incomplete.
NASD found that, from January 2002 to March 2004, Morgan Stanley failed to file in a timely manner approximately 67 percent of the required Form U4 and Form U5 updates that were the subject of NASD's review. Those updates were filed from one to several hundred days late, and approximately 52 percent of all late filings were more than 90 days late. NASD also found that Morgan Stanley failed to maintain and enforce effective supervisory systems and procedures to achieve compliance with its reporting obligations. The firm, among other things, failed to assign clear responsibilities and tasks to its management and employees; to ensure that employees were accountable for the performance of their assigned tasks within clearly defined time periods, and to allocate sufficient resources, including personnel and other resources, to ensure timely filings.
Morgan Stanley has previously been the subject of four New York Stock Exchange disciplinary actions for similar reporting violations. State securities regulators in Maryland, Florida and Vermont have also previously filed charges against the firm for failing to update reportable information pertaining to its representatives.
Morgan Stanley agreed to the sanctions while neither admitting nor denying the allegations.
NASD currently is engaged in a number of ongoing investigations involving similar types of reporting violations at other firms, including both late filings and failures to report information about brokers.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm through 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 2.9 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 the program by going online to http://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 bringing integrity to the markets and confidence to investors 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 registered firms. For more information, please visit our Web site at http://www.nasd.com/.