Morgan Stanley Agrees to $500,000 Fine for Lying to Investors

Investment broker Morgan Stanley has agreed to pay $500,000 in fines for lying to customers at its Nashville office about financial relationships the brokerage had with other money management firms it recommended to clients.

The fine levied by the Securities and Exchange Commission settles charges accusing Morgan Stanley of misleading clients about relationships it had with firms who paid millions of dollars in commissions for sending investors their way.

Morgan Stanley was accused of breaching its fiduciary duty to its Nashville-area clients by making “material misstatements” about an investment program from 2000 to early 2006. Customers were directed to other money management firms that had not been approved to participate in the company’s advisory program and were not told that Morgan Stanley had an arrangement with those firms to be compensated for the referrals, the SEC said.

“Morgan Stanley said one thing and did another when recommending money managers who had not been properly vetted by the firm,” said Scott Friestad, the associated director of the SEC’s enforcement division.

Morgan Stanley denied any wrongdoing but agreed to pay the fine nonetheless.

Also charged in connection with the alleged wrongdoing was William Keith Phillips, a former investment adviser in Morgan Stanley’s Nashville, Tenn., branch office. The SEC against Phillips is still pending, officials said.

Phillips is accused of steering clients to three unapproved management firms that in return paid at least $3.3 million in commissions and fees to Morgan Stanley and him, the SEC said.

“Phillips repeatedly disregarded Morgan Stanley’s policies and procedures and reaped undisclosed financial benefits from these unapproved managers,” Friestad said in a published statement announcing the fine.

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