The SEC is looking into Morgan Stanley's money laundering programs, according to the regulatory report it filed with the regulator on Monday.
The firm's quarterly filing says that it has been “engaged and responding” to requests for information from the commission's Division of Enforcement since April regarding “advisory cash balances involved in affiliate bank deposit programs and compliance with the Financial Advisers Act Investments of 1940”.
Morgan Stanley's admission follows disclosure last November by fellow television company Wells Fargo that the SEC was investigating that company's money laundering programs. Clearing programs enable firms to put clients' uninvested money to work, generating returns for the firm and clients.
According to ReutersWells Fargo's money was placed in interest-bearing accounts and money market funds. In a regulatory filing last week, Wells Fargo noted that it was in “settlement discussions with the SEC” over the cash laundering issue. However, she could offer “no assurance as to the outcome of those discussions”.
During the quarterly earnings call last monthMorgan Stanley Chief Financial Officer Sharon Yeshaya said the company intended to change its advisory write-off fees “against the backdrop of changing competitive dynamics”.
Wells Fargo and Bank of America also announced anticipated changes to the pricing of their cash-out programs, though LPL Financial declined. LPL CEO Dan Arnold said the firm had “no plans” to change the cash-clearing price during the firm's second-quarter earnings call.
“As for the firms that have made changes, they have different business models and monetization frameworks than ours, so we can only speculate about the issues they might address,” Arnold said.
LPL and Wells Fargo are defendants in lawsuits filed by customers in recent weeks over their money laundering programs; In his lawsuit filed against Wells Fargo in California federal court, Keith Bujold argued that the firm used its bank cleaning programs “to generate huge fees for itself at the expense of its customers who receive only a minimal return on their cash deposits”.
According to the Morgan Stanley filing, the electronic house has been named in two class actions related to its money laundering programs.
In February, a client sued Morgan Stanley and E*Trade Securities, alleging the firms breached client agreements by failing to pay reasonable interest rates to retirement account holders with bank cash balances. A downsizing client's estate also filed a lawsuit alleging the firm breached its fiduciary duty by paying low interest rates through its retirement account holder cash-out, brokerage and advisory programs.