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Morgan Stanley & Co., LLC has agreed to pay $100,000 to the New Jersey Bureau of Securities, following an investigation that found the investment firm violated state securities laws and regulations in its sale of non-traditional Exchange-Traded Funds (ETFs) to investors.
The settlement includes $65,000 in civil penalties, $25,000 for reimbursement of the Bureau’s investigative costs and $10,000 for Bureau use in investor education. Morgan Stanley previously paid $96,940.34 in restitution to New Jersey investors.
“When investors are not told all material facts about financial investment opportunities, they often suffer losses they might otherwise have avoided. This case clearly illustrates this point and underscores how our Bureau of Securities works to protect investors when our regulations are not followed,” said Acting Attorney General John J. Hoffman in a statement.
According to the Bureau’s investigation, Morgan Stanley violated the state’s Uniform Securities Act by failing to provide adequate training to its financial advisers about non-traditional ETFs; failing to implement a reasonable system for supervision of the sale of non-traditional ETFs; and allowing its financial advisers to solicit unsuitable investors to purchase non-traditional ETFs.
Among other things, the Bureau’s investigation showed that some of Morgan Stanley’s investment advisers recommended non-traditional ETFs to elderly investors with a conservative risk tolerance and whose primary investment objective was that of income. Instead, their ETF transactions resulted in significant losses.
ETFs are registered unit investment trusts whose shares represent an interest in a portfolio or securities that track an underlying benchmark or index. Non-traditional ETFss reset daily and are intended to achieve their stated objectives only on a daily basis. When held longer, the funds can generate returns that differ significantly from the performance of the underlying benchmark or index.
“Investors depend upon their investment advisers to offer them securities that are appropriate for their level of risk tolerance, and with full disclosure of all relevant terms. In this matter, we 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,” said Abbe R. Tiger, Chief of the New Jersey Bureau of Securities.
If you’ve lost money with Morgan Stanley through unsuitable investments in non-traditional exchange-traded funds, please contact us to tell your story.