By Lisa Beilfuss
The Financial Industry Regulatory Authority said Monday that it
fined Morgan Stanley Smith Barney LLC and Scottrade Inc. a combined
$950,000 for insufficient supervisory systems to monitor the
transmittal of customer funds to third-party accounts.
"Firms must have robust supervisory systems to monitor and
protect the movement of customer funds," Finra enforcement official
Brad Bennett said. "Morgan Stanley and Scottrade had been alerted
to significant gaps in their systems by Finra staff, yet years went
by before either firm implemented sufficient corrective
measures."
Morgan Stanley was fined $650,000 after Finra found that, from
October 2008 to June 2013, three registered representatives in two
different branch offices converted a total of about $500,000 from
13 customers by creating fraudulent wire transfer orders and branch
checks from the customers' accounts to third-party accounts.
Supervisory failures allowed the conversions to go undetected,
Finra said.
Scottrade, which was fined $300,000, didn't obtain customer
confirmations for third-party wire transfers of between $200,000
and $500,000 from October 2011 to October 2013, according to Finra.
The agency alleged Scottrade processed transfers totaling about
$880 million during that period.
Morgan Stanley and Scottrade neither admitted nor denied the
charges.
A spokesman for Morgan Stanley said the firm terminated the
employees involved and made affected customers whole upon
discovering the misconduct.
"The firm has since established additional controls to further
detect and prevent this type of misconduct from occurring," he
said.
A representatives for Scottrade wasn't immediately available for
comment.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
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