FINRA fined Morgan Stanley & Co. $800,000 for failing to make public disclosures required by the agency’s rules governing research analyst conflicts of interest.
According to FINRA, the company allegedly failed to comply with certain provisions of the 2003 Research Analyst Settlement by refusing to disclose the availability of independent research in customer account statements.
In a statement, Morgan Stanley claimed to have initially reported the issue to FINRA and has developed and implemented improved systems for the publication of the required disclosures in order to address it.
The regulator found that from April 2006 to June 2010, Morgan Stanley distributed equity research reports that failed to provide information regarding the relationship of the company and its analysts to the companies mentioned in its research reports. Together, these discrepancies resulted in about 6,836 deficient disclosures in 6,632 equity research reports and 84 public appearances by research analysts.
Other reported disclosures included the company’s lack of citations of its role as a manager, or co-manager of a public offering of securities, price charts in research methods and the valuation method used to guide published price targets.
Additionally, on the customer’s side, about 127,600 of their monthly account statements from Morgan Stanley did not reveal any alerts that it had available independent third-party research. While this notification was part of an agreement with the Securities and Exchange Commission, it was later incorporated into a separate agreement with FINRA.
In determining the appropriate sanctions in this matter, FINRA considered Morgan Stanley's self-review and self-reporting of some of its disclosure violations and remedial steps taken by the firm, as well as a prior FINRA settlement in 2005 that found the firm violated FINRA's research analyst disclosure rules.
“Morgan Stanley is pleased to settle this issue of disclosures in certain of its equity research reports with FINRA,” the company said in its statement.