Securities Arbitration Lawyer Blog
Iorio Altamirano LLP is investigating claims on behalf of Morgan Stanley customers after the firm agreed to pay restitution of more than $1.7 million over supervisory failures related to its 529 plan share-class recommendations. If you have lost money with Morgan Stanley or were advised by a Morgan Stanley representative to purchase particular share classes of 529 savings plans, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.
Morgan Stanley and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on December 30, 2020, over findings that between January 1, 2013, and June 30, 2018, the firm failed to establish and maintain a system reasonably designed to supervise representatives’ recommendations to customers to purchase certain share classes of 529 savings plans, in violation of MSRB Rule G-27. Specifically, the FINRA AWC stated that Morgan Stanley’s supervisory system was not reasonably designed to supervise 529 share-class recommendations executed 1) in certain legacy Smith Barney accounts or 2) through transactions made directly with plans.
Morgan Stanley is headquartered in Purchase, New York, and has been a FINRA member firm since May 2009. As of December 2020, Morgan Stanley had approximately 720 branches and over 23,500 registered persons.
What are 529 Plans?
529 plans are tax-advantaged municipal securities designed to encourage saving for a designated beneficiary’s future educational expenses. Shares of a 529 plan are sold in different classes with different fee structures.
Class A shares generally impose a front-end sales charge but have lower annual fees compared to other classes. Class C shares generally impose no front-end sales charge but have higher annual fees than Class A shares. As a result of these higher annual fees, Class C shares may be more expensive over an extended holding period. Class A shares are often a suitable option for accounts with younger beneficiaries and a longer investment horizon.
As part of the FINRA AWC, Morgan Stanley was censured and ordered to pay over $1.4 million in restitution to affected customers who incurred excess fees from Class C share purchases. A FINRA restitution order, however, does not preclude investors from pursuing their own claims to seek restitution or other available remedies. Morgan Stanley’s customers may have a claim against the firm.
Morgan Stanley had self-reported potential issues with its supervisory system and proposed a plan to remediate affected customers, which helped it avoid a fine from FINRA.
Municipal Securities Rulemaking Board (MSRB) Rules
529 plans are municipal securities, and the MSRB governs their sale.
Under MSRB Rule G-27(a), brokers, dealers, and municipal securities dealers must supervise the conduct of its municipal securities activities to ensure MSRB rules and federal securities laws compliance. Further, MSRB Rules G-27(b) and (c) require firms to establish and maintain a system, and to establish, maintain, and enforce written procedures, to supervise its municipal securities activities in a manner that is reasonably designed to achieve compliance with federal securities laws and MSRB Rules.
Between January 1, 2013, and June 30, 2018, Morgan Stanley was a designated broker-dealer for 35 state-sponsored 529 plans. During that time, approximately $11 billion in Morgan Stanley customer assets were held in 529 plan accounts. Although the firm prohibited its representatives from effecting 529 plan transactions with certain plans directly (outside of Morgan Stanley’s electronic order entry and account systems), Morgan Stanley did not have a supervisory system in place during this period to enforce its policy or detect non-compliance. As a result, Morgan Stanley failed to detect thousands of 529 plan transactions executed directly with plans.
If you have lost money with Morgan Stanley, contact New York securities arbitration lawyers August Iorio and Jorge Altamirano of Iorio Altamirano LLP at august@ia-law.com, jorge@ia-law.com, or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.