The SEC ordered Morgan Stanley Investment Management and brokerage firm Societe Generale Americas to pay $8.8 million and $1 million respectively for what it says was unsupervised prearranged trading conducted by a portfolio manager and a trader.
In what the SEC called an attempt to give certain clients preferential treatment, Morgan Stanley portfolio manager Sheila Huang allegedly arranged the sales of mortgage-backed securities to Societe Generale trader Yimin Ge at predetermined prices in 2011 and 2012. She then bought them back at a small markup. She also sold bonds at above-market prices but repurchased them at “unfavorable prices,” without disclosing this to the client, a scheme called “parking.”
Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit, said Morgan Stanley failed to see what Ms. Huang was doing because of the firm’s lack of supervisory oversight and failure to implement policies against these acts.
“Instead of playing by the rules, [Ms.] Huang engaged in prearranged trading schemes that benefited some clients while harming others,” Mr. Sprung said.
Morgan Stanley neither admitted nor denied the charges, but agreed to pay an $8 million penalty and a reimbursement of about $858,000 to the client accounts who were affected.
Ms. Huang also neither admitted nor denied the charges, but has agreed to pay a $125,000 penalty. She has been barred from the industry for at least five years.
A Morgan Stanley spokesman said the firm has taken “appropriate compensatory action with respect to clients harmed by the misconduct.”
“The actions of this former employee stand in stark contrast to our firm’s commitment to integrity and the highest standards of ethical conduct,” he added.
In a separate order, the SEC found Societe Generale failed to supervise Ms. Ge. Societe Generale neither admitted nor denied the charges, but agreed to pay an $800,000 penalty and $211,000 in disgorgement and prejudgement interest.
Ms. Ge no longer works at the firm and has agreed to pay a $25,000 penalty. She is also barred from the industry for at least three years, according to the SEC press release. A BrokerCheck search on the Financial Industry Regulatory Authority website found that Ms. Ge was barred as of Oct. 27, 2014.
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