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FINRA Hits Morgan Stanley with $13 Million in Fines and Restitution for Inadequate Supervision of UITs

The Financial Industry Regulatory Authority (FINRA) announced today that it ordered Morgan Stanley Smith Barney LLC (Morgan Stanley) to pay $13 million in fines and restitution for failing to supervise the sales of unit investment trusts (UITs).

FINRA found that from January 2012 through June 2015, hundreds of Morgan Stanley brokers executed short-term UIT rollovers in thousands of customer accounts.  Further, FINRA found that Morgan Stanley failed to adequately supervise its representatives’ sales by failing to provide sufficient guidance or training to detect unsuitable short-term UIT trading. 

UITs, like mutual funds and closed-end funds, are designed to be held for a certain amount of time after which they close, often after 15 or 24 months.  When a broker sells an investor’s position in the UIT early and rolls it over into a new trust, the investor can incur higher sales charges, which raises concerns over the suitability of the rollover.  FINRA’s Executive Vice-President and Head of Enforcement, Susan Schroeder, said, “Due to the long-term nature of UITs, their structure, and upfront costs, short-term trading of UITs may be improper and raises suitability concerns.  Firms must … have in place a system to detect potentially unsuitable short-term UIT rollovers.”

FINRA fined Morgan Stanley $3.25 million, and ordered the firm to pay $9.78 million in restitution to more than 3,000 affected customers.  Morgan Stanley neither admitted nor denied FINRA’s findings.

In order to protect customers, FINRA rules require broker-dealers to establish and implement a reasonable supervisory system.  These rules require supervisors to monitor firm activities to ensure they comply with federal and state securities laws, securities industry rules and regulations, as well as the brokerage firm’s own policies and procedures.  If broker-dealers do not establish and implement such protective measures, they may be liable to account holders for damages stemming from a lack of supervision.  As a result, investors whose brokers have made unsuitable trades and/or unsuitable UIT rollovers can bring forth claims to recover damages against broker-dealers, like Morgan Stanley, which have a duty to oversee its registered representatives in order to protect their customers’ interests.

Have you paid unnecessary sales charges due to your stockbroker’s unsuitable UIT rollovers? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.  Mr. Pearce is accepting clients with valid claims against Morgan Stanley stockbrokers for unsuitable UIT rollovers and other unsuitable investment recommendations and trades.

The most important of investors’ rights is the right to be informed!  This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida.  For over 35 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities, and investment law issues.  The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally!  Please post a comment, call (800) 732-2889, send Mr. Pearce an email at pearce@rwpearce.com, and/or visit our website at www.secatty.com for answers to any of your questions about this blog post and/or any related matter.