CTFC issues $200K penalty against Morgan Stanley

WASHINGTON (Legal Newsline) - Morgan Stanley Smith Barney violated CFTC regulations by failing to diligently supervise employee handling of customer accounts, according to an order issued Monday by the U.S. Commodity Futures Trading Commission.

Morgan Stanley, a futures commission merchant based in Purchase, N.Y., was ordered by the CFTC to pay a $200,000 civil monetary penalty and is prohibited from violating CFTC regulation 166.3 in the future.

A Morgan Stanley customer was provided trust services for their clients. However, the CFTC order says, the customer was violating the Commodity Exchange Act by acting as an FCM without being registered. The customer accepted orders to trade commodity futures contracts on behalf of clients, also accepted funds to place those trades, and affected the trades through a contract market, according to the order.

The CFTC order claims Morgan Stanley violated regulations by not attentively investigating suspicious transactions that were signs the customer was acting unlawfully as an FCM.

During 2006 to 2008, the customer completed five transfers of funds from its Morgan Stanly proprietary commodity futures trading account to a bank account held by the customer's clients, the order says. Transfers of this nature should have initiated Morgan Stanley to investigate the customer's actions and whether the account was being carried properly, the CFTC said.

The order found by Jan. 15, 2010, Morgan Stanley became aware of the customer's proprietary futures trading account had been carried improperly since 2006. Despite this realization, Morgan Stanley continued to allow the customer to act as a FCM, the CFTC said.