More On Legal & Compliancefrom The Advisor's Professional Library
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
Morgan Stanley (MS) has agreed to pay a $5 million fine over issues related to its conduct as the lead underwriter of Facebook’s (FB) IPO on May 18, Massachusetts regulators said Tuesday. The company, which is led by James Gorman (left) neither admitted to nor denied the charges.
The broker-dealer, according to a document released by the state, failed to follow certain rules laid out in 2003 by a variety of regulatory groups, when Morgan Stanley was asked to pay $125 million concerning violations from July 1999 through June 2001.
Specifically, Morgan Stanley research analysts “were subject to inappropriate influence by investment banking at the firm,” according to the document released Tuesday by regulators, who pointed to a continuation of this conduct as a reason for taking action against the broker-dealer.
In the case of the Facebook IPO, an initial S-1 registration document was filed with the SEC on Feb. 1, and an amended S-1 was filed on May 3. The social-networking website began its investor roadshow on May 7, and soon Facebook--which communicated with Morgan Stanley's investment-banking staff--began to lower its 2012 revenue estimates by about 3-3.5%.
It filed an amended S-1 late on May 9, and then some research analysts with a variety of broker-dealers lowered their estimates of the website’s 2012 revenue. However, this was after many of the investor roadshows had taken place.
Furthermore, “The script drafted by [a] senior investment banker [to be shared with equity analysts] included quantitative information regarding Facebook’s projections for 2Q12 that was not contained in the S-1,” according to Massachusetts regulators.
“We are pleased to have reached a settlement with Secretary Galvin and the Massachusetts Securities Division and to have put this matter behind us,” Morgan Stanley said in a statement. “Morgan Stanley is committed to robust compliance with both the letter and the spirit of all applicable regulations and laws.”
Facebook ended trading on Tuesday at $27.71 per share. This is down about 30% from its first day of trading. Since mid-May, it has traded between $17.55 and $45.
Meanwhile, the S&P 500 has improved by more than 12.5%, while beer-maker Anheuser-Busch Inbev SA (BUD) has jumped roughly 25%.
Check out where Morgan Stanley ranked in 12 Best & Worst Broker-Dealers: Q3 Earnings at AdvisorOne.