ARCHIV: Die Zentrale der US-Investmentbank Morgen Stanley in New York City (USA) (Foto vom 16.03.09). Die amerikanische Bank Morgan Stanley hat im Zusammenhang mit dem Boersengang von Facebook einer Strafe von fuenf Millionen Dollar an die Boersenaufsicht von Massachusetts zugestimmt. Die Boersenaufsicht des US-Staates warf der Bank vor, niedrigere Umsatzzahlen nur einigen Analysten und nicht der Oeffentlichkeit zugaenglich gemacht zu haben. Morgan Stanley raeumte keine Schuld ein, stimmte jedoch der Zahlung zu. (zu dapd-Text) Foto: Michael Kappeler/dapd
AP/Michael Kappeler
By Trevor Hunnicutt

Morgan Stanley (MS) has agreed to pay a $100,000 fine to New Jersey state securities regulators for selling exotic exchange-traded funds to unwary investors, state officials said on Tuesday.

The New Jersey Bureau of Securities says improperly trained Morgan Stanley financial advisers sold non-traditional funds, such as leveraged and inverse ETFs, to elderly investors seeking investments that would provide income. The investments resulted in losses for those clients, regulators said.

In a statement, Morgan Stanley said they were "pleased" to reach a resolution.

"The settlement covers the period of January 2007 to June 2009, and Morgan Stanley revamped its processes regarding these products over 4 years ago," the statement read.

Leveraged and inverse ETFs use derivatives and debt to magnify market returns. They are designed to deliver amplified returns in the short run and can deviate substantially from the benchmarks over longer time periods. Because many of the funds reset on a daily basis, they can radically differ from the performance of their underlying benchmark.

In a statement, Abbe R. Tiger, Chief of the New Jersey Bureau of Securities, said investigators "found that Morgan Stanley's staff lacked proper training about non-traditional ETFs, and that the company failed to adequately supervise its personnel handling ETF transactions, to the detriment of investors."

There are 257 leverage and inverse ETFs on the market with a market capitalization of $35.44 billion, according to XTF, a fund data service.

Both products are the subject of litigation and warnings from regulators. In 2009, the U.S. Securities and Exchange Commission issued an alert that advised buy-and-hold investors about the "extra risks" posed by leveraged and inverse ETFs.

Last week a federal appeals court rejected a lawsuit challenging ProShares Advisors LLC's disclosures of the risks of holding 44 of its leveraged ETFs.

Morgan Stanley's payment includes $65,000 in civil penalties, $25,000 to reimburse the state's investigative costs and $10,000 for the state bureau to use for investor education. Morgan Stanley has already paid nearly $96,940 in restitution to New Jersey investors.

In April 2012, Morgan Stanley consented with Wall Street's industry funded watchdog, the Financial Industry Regulatory Authority, to nearly $2.4 million in fines and restitution connected with the non-traditional ETFs.

Dev Modi, a securities arbitration lawyer in Florham Park, New Jersey, who represents investors, said the fines were likely to bring more attention and possibly litigation on the risks of exotic securities.

"Some of these non-traditional ETFs have a lot more risks with them than the general public realizes," said Modi.

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They should go to jail!

August 01 2013 at 11:04 AM Report abuse rate up rate down Reply

Whats new? Isn't that always how Morgan Stanley, Bear Stearns, BOA, Fannie Mae and thier rotten ilk make thier money? Forget penalties. Shut them down.

August 01 2013 at 8:20 AM Report abuse +1 rate up rate down Reply

That's peanuts!

August 01 2013 at 8:09 AM Report abuse +1 rate up rate down Reply
welcome Richard

The fine is less then the profit. How about some jail time to go along with that paltry fine?

August 01 2013 at 3:04 AM Report abuse +1 rate up rate down Reply

That $100,000 fine needed 3 more zeros tacked onto the end of it...

...BEFORE the decimal point.

July 31 2013 at 11:06 PM Report abuse +2 rate up rate down Reply

The Financial advisors at Morgan Stanley represent Morgan Stanley NOT the Investor. I was an Investor with Morgan Stanley for several years and finally discovered that the Field Vice President was advising me to buy a stock at the same time their internal for profit division was selling the same stock.

As an investor with Morgan Stanley you are also competing with their own internal stock traders.

They did the same thing with Bonds sales. I asked My Field Vice President to buy me a State College bond that I could hole for 3 or 4 years. What he actually did was invest my $40K in the National Bond Market. When I noticed my Bond segment going down I called and asked him what was going on.

When I notified the Morgan Stanley Corporate Headquarters they told me that the market went up and down.

I fired Morgan Stanley and have recovered all my losses by doing my own investing without Morgan Stanley ripping me off with inhouse trades.

July 31 2013 at 10:40 PM Report abuse +3 rate up rate down Reply

No one going to jail? Hmmm....

July 31 2013 at 7:35 PM Report abuse +3 rate up rate down Reply

Were the financial advisors not properly trained or not properly incentivated to protect their clients interests? Everyone has to pass their licensing exam(s) but there is great pressure to "produce" and that may mean crossing the line from ethical to unethical behavior.

July 31 2013 at 7:27 PM Report abuse +1 rate up rate down Reply

Learn to invest on your own. It's not difficult.

July 31 2013 at 5:17 PM Report abuse -1 rate up rate down Reply

Morgan Stanley has had a long history of abuses like this. I agree this is not even a slap on the wrist. The taxpayers already bailed out Morgan Stanley. So what do they do "blame" the lowest level. "Some new improperly trained workers". Until we stop socializing punishment (ie hold investors repsonsible for wrongdoing) and go after the executives individually, these problems will continue. Slap the CEO with $96,000,000 fine and the problem will go away over night.

July 31 2013 at 4:57 PM Report abuse +3 rate up rate down Reply