Morgan Stanley Subpoenaed Over Annuity Sales - Jan, 2005
by Neil Weinberg, Forbes, Jan 19, 2005
NEW YORK - Morgan Stanley was served with a subpoena by the state of Massachusetts earlier today seeking information about its sales of variable annuities. The subpoena was served by Secretary of the Commonwealth William Galvin and seeks information about whether the leading Wall Street firm received secret payments from insurance companies to sell their variable annuity products.
"There have been ongoing issues regarding pay-to-play and undisclosed compensation for some time," Galvin says. "We are eager to make sure whether there is further evidence of this practice."
The subpoena comes amid increasing scrutiny of whether large brokerage firms have received secret payments from insurance companies to sell variable annuities, which offer both a death benefit and a financial return based on how well the investments inside them perform. Variable annuities can be particularly profitable because of high upfront fees and ongoing revenue from the securities.
A Morgan Stanley spokesman said, "We are confident that our practices in this area are appropriate and have been properly disclosed."
San Diego securities attorney Ronald Marron has filed a complaint over Morgan Stanley's variable annuity sales practices with the National Association of Securities Dealers. Marron says he plans later this week to file a class suit against the firm making similar claims. Marron has likewise filed complaints against AIG and Charles Schwab for wrongfully selling variable annuities to senior citizens. He may also file additional class suits against brokers over their variable annuity sales practices, he said.
Marron's complaint against Morgan Stanley claims it received undisclosed payments to sell the variable annuities of Lincoln National Life Insurance Co., Lincoln Financial Advisors, John Hancock, Manulife, Nationwide and The Hartford. The Hartford disclosed in November that it has received subpoenas from the California and Florida attorneys general over its brokerage commission practices.
The Massachusetts subpoena is seeking the names of all companies whose variable annuities Morgan Stanley sells, documents outlining revenue-sharing arrangements, compensation, whether the products receive preferred sales treatment, commission schedules, prospectuses and documents for internal use only.
The investigation comes at a particularly sensitive time for Morgan Stanley. Only 14 months ago it agreed to pay $50 million in a Securities and Exchange Commission settlement charging it with failing to disclose to its mutual fund clients that its brokers were receiving extra payments to sell certain products.
Galvin's office charged Morgan Stanley with similar wrongful mutual fund sales practices, and a ruling on the case is expected soon.