Morgan Stanley & Co. settled for $325,000 a Financial Industry Regulatory Authority claim that the firm published inaccurate equity data between 2019 and 2021, affecting a total of 12,616 research reports, according to a filing disclosed yesterday.
According to the Finra letter of acceptance, waiver and consent, between August 2019 and February 2020, Morgan Stanley published some 11,000 equity research reports that included price charts reflecting inaccurate historical stock ratings.
In addition, between April 7 and May 17 of 2021, the firm did not adequately disclose required beneficial ownership information in 1,616 equity research reports, the filing said.
When contacted, Morgan Stanley declined to comment.
The Finra filing stated that the price chart errors came about because the firm updated its software in August 2019 to address new European Union requirements regarding the disclosure of five years of information for a recommended security. That update apparently had a typo in the coding that caused the price charts in some displays to be labeled as three-year charts, not five-year, the filing said.
“For example, if a stock was rated ‘overweight’ five years before a research report’s publication date and ‘equal-weight’ three years before the publication date, the software error caused the price chart to incorrectly disclose that the stock was rated ‘overweight’ three years before the publication date, instead of ‘equal-weight,’” the Finra filing stated. “The software error impacted only the presentation of historical ratings within the price charts.”
A Morgan Stanley supervisory analyst discovered the issue and escalated it in January 2020, however the firm continued to publish incorrect data while it resolved the problem, which took about a month, the filing said. Between August 2019 and February 2020, about 11,000 inaccurate reports were generated.
As the result of a second software issue, Morgan Stanley also failed to properly disclose that the acquisition of an investment management company in March 2021, which increased Morgan Stanley’s holdings of many equity securities, changed the level of its beneficial ownership in those securities, which should have been updated in research reports, the filing said.
On April 7, 2021, Morgan Stanley did update its beneficial ownership feed to include those holdings (with data from the prior month), but the firm’s system rejected the update as potentially erroneous, according to the filing. Typically, the system would then automatically notify personnel of the rejection, but a software error prevented that from happening. The issue wasn’t identified until May 2021, when it was promptly rectified, the filing said.
In the meantime, some 1,616 research reports went out with the faulty information, Finra said.