FINRA fined Morgan Stanley & Co. LLC a total of $2 million for a six-year-long period of violations related to short sales and short interest reporting. Investigators wrote that the problem affected certain securities involving billions of shares and occurred at a firm whose supervisory system was deficient.
According to the findings, Morgan Stanley violated several FINRA/NASD, NYSE and SEC rules by failing to submit accurate short interest reports and failing to have an adequate supervisory system in place reasonably designed to comply with reporting rules, aggregation units and short sales.
Investigators found that Morgan Stanley broke SEC short sale rules by including the security positions of non-broker-dealer affiliates in a number of aggregation units when determining whether they were long or short. The SEC regulation states that firms may not include the security positions of customers or non-broker-dealer affiliates in such aggregation units.
The FINRA action states that Morgan Stanley over-reported several short interest positions by multiple thousands, including 45 specific settlement dates during which Morgan Stanley purportedly underreported its short interest by approximately 4 billion shares.
FINRA staff calculated that Morgan Stanley's reporting failures included "on average" over a billion shares per reporting cycle and that the firm's written supervisory procedures were deficient such that the firm failed to detect and prevent the reporting violations.
The $2 million fine includes a $1.4 million penalty for the short interest reporting violations, $250,000 for the short interest supervision violations, $250,000 for short sale violations, and $100,000 for the short sale supervision violations. FINRA also censured the firm and ordered them to revise their WSPs.
If you have invested with Morgan Stanley, or with any firm whose deficient supervisory systems related to short sales, short interest reporting or any other product has allowed mistakes and red flags such as over- or under-reporting to go undetected, and such sustained violations have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.