Morgan Stanley Investment Management agreed Wednesday to pay $3.3 million to settle SEC charges that it didn't provide adequate control over a subadviser contract.
It's the first case brought under a new SEC enforcement initiative scrutinizing fee arrangements between investment advisers and registered funds.
The payment includes $1.85 million that will be paid back to investors in The Malaysia Fund, a closed end fund for which MSIM served as primary investment adviser, plus a $1.5 million penalty for failing to oversee a subadvisory contract for services that were not provided.
According to the SEC, MSIM in 1996 contracted with AMMB, a subsidiary of Malaysia's AM Bank Group, to subadvise The Malaysia Fund. The fund's board of directors approved the subadviser fees each year through 2007 on the recommendation of MSIM, which had arranged the agreement and was responsible for filing reports to shareholders.
“MSIM clearly lost sight of this subadviser,” Eric I. Bustillo, director of the SEC's Miami regional office which led the investigation, said in a statement.
The SEC also charged MSIM with failing to file accurate information in reports to shareholders.
MSIM terminated its contract with AMMB in early 2008 after the SEC discovered that no contractual services had been provided by AMMB.
“The settlement fully resolves the SEC's investigation into MSIM, and we're pleased to put the matter behind us,” Matt Burkhard, Morgan Stanley spokesman, said in a telephone interview.
SEC officials declined to comment on whether AMMB would face charges but said in the statement their investigation is ongoing. Robert Kaplan, co-director of the SEC enforcement division's asset management unit, said in a telephone interview that scrutinizing investment adviser fee arrangements is a priority. “There are a number of cases in the pipeline related to this initiative.”