Morgan Stanley pays $8 million penalty after allegations linked to single inverse ETF investments

By Mark Iandolo | Feb 27, 2017

WASHINGTON (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 advisory clients.


According 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 Enforcement Division.


Handling the case for the SEC were Breanne Atzert, Helaine Schwartz and Stephan Schlegelmilch. The case was supervised by Lisa Deitch and Antonia Chion.

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