Morgan Stanley agreed to pay $500,000 to settle SEC charges that the company “breached its fiduciary duty” to consulting clients run from its Nashville, Tenn., office, allegedly by steering them to unapproved money managers that paid it “substantial brokerage commissions” without the knowledge of investors, according to an administrative order of the SEC.
Morgan Stanley and William Keith Phillips, a former Morgan Stanley consultant, were charged “with securities law violations for misleading clients about the money managers being recommended to them and failing to disclose conflicts of interest,” an SEC statement said.
Mr. Phillips did not settle with the Securities and Exchange Commission and will be filing a denial, said Ronald G. Harris, an attorney with the law firm of Neal & Harwell, who is representing Mr. Phillips. “He intends to contest the charges. He contends he didn't commit any improprieties,” Mr. Harris said.
The changes relate to the time Mr. Phillips worked at Morgan Stanley, which he left in 2006, Mr. Harris said. The alleged misconduct spans a period from 2000 to at least April 2006, according to the SEC order.
The SEC did not name any of the clients.
Morgan Stanley, through its investment consulting services group, assisted in the selection of money managers for clients, a due diligence process the company described to investors, the SEC order said. But the SEC alleges that Mr. Phillips “disregarded whether … money managers had been vetted by Morgan Stanley before he recommended them to clients,” the statement said. “Furthermore, advisory clients were not informed about the conflicts of interest that Morgan Stanley and (Mr.) Phillips had in recommending these unapproved money managers to clients.”
The SEC alleges Morgan Stanley “failed reasonably to supervise (Mr.) Phillips and failed to maintain certain books and records as required.”
Morgan Stanley settled the charges without admitting or denying the findings by agreeing to pay the penalty within 90 days.
Morgan Stanley said in a statement, “The financial adviser is no longer employed here, and we have since strengthened our policies and procedures around the marketing of investment advisory services.”