The Financial Industry Regulatory Authority (FINRA) has fined Morgan Stanley Smith Barney and Scottrade a combined $950,000 for not implementing sufficient supervisory systems to monitor the third-party fund transfers.
In specific, Morgan Stanley was fined $650,000, while Scottrade was fined $300,000. Both the companies neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
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FINRA executive vice president and chief of enforcement Brad Bennett said: "Firms must have robust supervisory systems to monitor and protect the movement of customer funds. 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."
According to FINRA findings, from October 2008 to June 2013 three registered representatives in two different branch offices of Morgan Stanley had converted a total of $494,400 from thirteen customers by creating fraudulent wire transfer orders and branch checks from the customers’ accounts to third-party accounts.
FINRA also found that Scottrade did not obtain any customer confirmations for third-party wire transfers between $200,000 and $500,000, from October 2011 to October 2013.
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