Massachusetts regulators Monday filed administrative proceedings against Morgan Stanley for providing its brokers with incentives to sell in-house funds and funds of partner firms. The new suit follows a similar civil suit the state filed against Morgan Stanley last month.
"We are going to go forward in this matter and will attempt to recover money that was obtained under these high-pressure tactics," Brian McNiff, a spokesman for Secretary of the Commonwealth William Galvin, told The Wall Street Journal. The state believes these sales tactics earned Morgan Stanley $5 million to $8 million in commissions since January alone.
In a statement, Galvin compared Morgan Stanleys sales practices to those of used-car salesmen.
Massachusetts contends that some of Morgan Stanleys branches in Massachusetts held a contest, against the firms own policies, to offer a total of $100,000 worth of prize money to brokers who sold the most Morgan Stanley or affiliated funds. A regional director for the firm allegedly told managers in a number of e-mails not to put the contest in writing, but to coach brokers verbally. Brokers were also allegedly told not to disclose the contest to clients. Individual teams or branches reportedly stood to earn prizes ranging from $6,000 to $15,000.
In addition, in-house funds paid far higher commissions, Massachusetts regulators noted. This past February, at one branch alone, Morgan paid more than $25,000 in commissions for affiliated funds, as opposed to $356 for non-affiliated funds.
"Unsuspecting investors were steered to these funds, not because they were the best choice but because they put the most amount of money in the pocket of the broker, the branch manager and Morgan Stanley," Galvin said.
Massachusetts regulators released excerpts from some of these Morgan Stanley e-mails, including the exhortation, "Please DO NOT put anything in writing in e-mail or fax on the promotional part of our current campaign. Walk your team members through this information VERBALLY."
At a national sales meeting of branch managers last July, Morgan Stanley executives set a nationwide goal of $5.27 billion worth of in-house fund sales for the fourth quarter, The Journal reports.
Morgan Stanley Andrea Slattery told Reuters the firm could not comment on the charges until it sees the suit.