Washington, D.C. – Morgan Stanley Smith Barney LLC was penalized $200,000 by the U.S. Commodity Futures Trading Commission (CFTC) for failing to adequately supervise its employees and detect unlawful activity, the agency announced October 22, 2012.
The CFTC found that Morgan Stanley, a futures commission merchant based in Purchase, New York, violated CFTC regulation 166.3 by not diligently overseeing how its employees handled customer accounts. The order requires Morgan Stanley to cease violating the regulation in addition to the monetary penalty.
The investigation centered around a customer, identified as “Customer A,” which provided trust services and was itself operating as an unregistered futures commission merchant. Customer A was allegedly accepting funds and placing trades on behalf of its own clients, effectively acting as an FCM without proper registration – a violation of the Commodity Exchange Act.
Between 2006 and 2008, Customer A transferred funds from its proprietary trading account at Morgan Stanley to a client’s bank account. The CFTC asserts that these transfers should have triggered an investigation by Morgan Stanley into the legitimacy of these transactions and whether Customer A was operating illegally.
Despite realizing in January 2010 that Customer A’s account had been improperly managed since 2006, Morgan Stanley continued to allow the customer to function as an unregistered FCM, processing trades on behalf of its clients through May 2010. The CFTC determined Morgan Stanley’s supervisory systems and internal controls were inadequate to prevent these violations.
The case was led by CFTC staff members Jason Mahoney, Timothy J. Mulreany, George Malas, Paul Hayeck, and Joan Manley.
Source: CFTC.gov
Related Federal Cases
- John Smith Pleads Guilty to $1B Embezzlement Scheme, New York NY, 2023 · Alaska
- Wall Street Firms, Financial Malfeasance, New York NY, 2023 · New York
- Christopher Ferguson, Scheme to Inflate Order Numbers, New York 2023 · New York
- John Q. Smith, $50M Fraud Ring, Washington DC, 2025 · New York
- Republic First Bank Collapses, Bank Failure, Philadelphia PA, 2023 · Washington
