Morgan Stanley Fined Over $1 Million for Failure to Supervise - October, 2006

October 17, 2006
by Catherine Tymkiw

Morgan Stanley & Co.'s broker-dealer unit agreed to pay more than $1 million to settle charges by New York state Attorney General Eliot Spitzer, who accused the firm of failing to supervise a broker who defrauded 15 customers of more than $740,000, according to Crain's New York Business.

Mr. Spitzer's office said an investigation found that from 1997 through 2001, Gabriele Tamar Smith - a broker in Morgan Staley DW Inc.'s White Plains, N.Y., office - mismanaged numerous accounts for customers, many of whom were elderly.

Ms. Smith was accused of making unauthorized transactions, signing wire transfers and new account documents without customer authorization and failing to inform her clients of risks associated with trading on margin.

"[Ms. Smith's] excessive trading generated large commissions for her, at her clients expense," according to a statement from Mr. Spitzer's office, which added that the firm "failed to conduct an internal review of her accounts, even though the firm was on notice that she was mishandling accounts."

In one case cited by the AG, Ms. Smith made over $1 million in trades on an account worth only $60,000 and pocketed more than $15,000 in commissions while her client loss nearly everything in less than a year.

Morgan Stanley, which has already settled two arbitration claims related to Ms. Smith's actions, agreed to pay $740,964.18 in restitution and $300,000 in costs and penalties.

Just last month, the investment firm was fined $2.9 million for violating reporting rules in bond transactions.

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