Morgan Stanley agreed to pay $2 million to settle the investigation by the Massachusetts securities regulator. The Massachusetts Securities Division investigation found that Morgan Stanley failed to ensure that First Republic’s then-Executive Chairman James Herbert II, whose trades matched details in the consent order, wasn’t trading on material nonpublic information. Herbert sold shares three times in the months before his bank’s failure, avoiding some losses in the subsequent wipeout. The investigation of the First Republic trades identified breakdowns across teams in the Morgan Stanley wealth-management department that are tasked with approving, executing and monitoring potentially problematic trades.
When First Republic’s share price collapsed weeks later, Morgan Stanley’s monitoring system began flagging Herbert’s recent trades for potential insider trading.
The bank later used the employee’s failure to establish the connection between First Republic and its top executive as part of educational training on how to review insider trading alerts and “how to conduct internet searches.”
As part of the settlement, Morgan Stanley agreed to conduct an internal review of policies around the trading of senior executives at publicly traded companies and provide training on the prevention and detection of insider trading, the regulator said.
Jeff Newman JD MBA, represents whistleblowers nationwide relating to Medicare and Medicaid fraud, under the state and federal False Claims Act (Qui Tam) laws as well as whistleblowers in major claims under the SEC, CFTC and FINCEN whistleblower programs. He can be reached at Jeff@JeffNewmanLaw.com or at 617-823-3217
