Spitzer Fines Morgan Stanley for Failure to Supervise
Morgan Stanley DW Inc. has settled civil charges in New York state court accusing the Morgan Stanley subsidiary of failing to supervise one of its employees who allegedly defrauded 15 clients of more than $740,000.
In an Oct. 17 press release, New York Attorney General Eliot Spitzer said Morgan Stanley DW will pay $740,964 in restitution and $300,000 in costs and a fine. In settling, the company neither admitted nor denied the charges.
In a release, Spitzer recounted that the employee in question, Gabriele Tamar Smith, was a registered broker with the firm between 1997 and 2001. The attorney general said an investigation concluded that she mismanaged client accounts by "engaging in excessive, unauthorized, and unsuitable trading."
Among other wrongdoing, Spitzer said Smith signed wire transfers and new account documents without customer authorization, and failed to inform clients of the risks in trading on margin. The alleged excessive trading generated outsized commissions for her at her clients' expense, Spitzer said.
The attorney general said Morgan Stanley DW failed to supervise Smith properly, failed to notify her clients of her wrongdoing, and failed to conduct an internal review of her accounts, even as the firm was on notice about her conduct.
Spitzer related that Morgan Stanley has settled two arbitration claims with Smith's clients for a total of $2.2 million. In 2003, NASD barred Smith from associating with any NASD member firm.