Morgan Stanley and TD Ameritrade were among the companies recently cited in enforcement actions by the U.S. Securities and Exchange Commission.
The SEC charged Morgan Stanley and one of its former advisor representatives with failing to disclose potential conflicts of interest with money managers that handled client assets during a period spanning 2000 to 2006. Morgan Stanley has agreed to a settlement payment of $500,000.
TD Ameritrade agreed to a settlement in a case in which it was accused of misleading clients about the risk profile of auction rate securities, according to the SEC. As part of the agreement, TD Ameritrade will allow clients to sell back any ARS's they bought prior to the ARS market collapse in February 2008, the SEC said. TD announced details of the ARS buyback in a press release Monday.
In a third case, New York-based investment advisor Perry Corp. was cited by the SEC for allegedly failing to report stock purchases it made as part of an elaborate merger arbitrage strategy. Perry agreed to pay $150,000 to settle the charges without admitting or denying to the SEC's findings, according to the SEC.
In the Morgan Stanley case, the SEC alleged that Morgan Stanley failed to perform due diligence, as it promised clients, on certain money managers it used as part of its investment advisory business. The managers, according to the SEC complaint, generated $3.3 million in commissions for Morgan Stanley during the covered time period-a fact that was not disclosed to clients.
The complaint against TD Ameritrade alleged that TD Ameritrade representatives told clients that auction rate securities were an alternative to certificates of deposit and money market accounts. The "representatives did not tell customers about the complexity and risks of ARS, including their dependence on successful auctions for liquidity," the SEC said in a written statement.
The case against Perry stemmed from a 2004 announcement by Mylan Laboratories Inc. that it planned to purchase King Pharmaceuticals Inc. Perry, a King stockholder, stood to profit significantly from the merger and secretly bought shares of Mylan to ensure the deal won shareholder approval, the SEC alleged in its complaint.