(Legal Newsline) – The Securities and Exchange Commission (SEC) announced Feb. 14
that Morgan Stanley Smith Barney will pay $8 million and admit wrongdoing after
allegations related to single inverse ETF investments it recommended to
to the SEC, Morgan Stanley failed in its duty to properly advise clients about
the risks associated with purchasing inverse ETFs. These ETFs are supposedly
unsuitable for long-term investing; investors generally need to get rid of the
ETFs within one trading cycle. Morgan Stanley, however, allegedly solicited the
ETFs to clients for retirement and other accounts.
The SEC said that
consumers would then hold these securities long-term and many clients experienced
losses. Morgan Stanley also allegedly failed to properly monitor single-inverse
ETF positions on an ongoing basis to ensure its advisors completed training
about the securities.
“Morgan Stanley recommended securities with unique risks and
failed to follow its policies and procedures to ensure they were suitable for
all clients,” said Antonia Chion, associate director of the SEC
the case for the SEC were Breanne Atzert, Helaine Schwartz and Stephan
Schlegelmilch. The case was supervised by Lisa Deitch and Antonia Chion.