Morgan Stanley will pay $2 million to settle charges filed by Massachusetts regulators that the firm failed to reasonably address potential insider sales involving First Republic Bank after a firm customer—who just happened to be a senior officer / insider at First Republic—sold thousands of shares of First Republic Bank stock prior to the bank's collapse.
The findings say that Morgan Stanley failed to confirm that its customer was not trading using material nonpublic information aka insider trading when Morgan Stanley effected the unsolicited sales of $6.8 million-worth of First Republic Bank held in that customer's account.
Shortly thereafter, Morgan Stanley purportedly effected an additional unsolicited sale of $2.6 million of First Republic Bank, all before that stock collapsed in 2023.
At its height, First Republic Bank (FRCB) traded at $219 per share in 2021, before falling to $123-per-share by March 2023, before ultimately crashing to virtual worthlessness. Despite being a failed bank, FRCB's shares traded this month as an over the counter penny stock with its shares valued at less than $0.03.
Through its investigation, Massachusetts regulators found that Morgan Stanley failed to adequately evaluate whether its First Republic insider customer was in possession of material nonpublic information upon requesting the $8+ million of First Republic Bank stock sales just months before the stock's dramatic crash. Regulators also concluded that Morgan Stanley failed to conduct a reasonable post-trade review of the sales, and Massachusetts uncovered additional record keeping failures at the firm.
This is hardly Morgan Stanley's first disciplinary incident. For instance, in 2020, the SEC fined Morgan Stanley $5 million for short sale violations in its swaps business. In 2021, the firm paid $14 million to settle a dispute concerning former Morgan Stanley broker Antoine Nabih Souma and alleging supervisory failures, excessive and unsuitable trading, improper exercise of discretion, falsified performance reports, misrepresentation, and constructive fraud.
If you invested with Morgan Stanley or any broker, investment adviser, or firm whose failure to enforce industry rules has proven harmful to your investments or interests, especially concerning losses associated with First Republic Bank's 2023 collapse, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.