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Banking Commissioner Announces $5 Million Settlement
With Morgan Stanley

June 16, 2014

Banking Commissioner Howard F. Pitkin announced today that Connecticut has reached a $5 million settlement with Morgan Stanley Smith Barney LLC (MSSB) to resolve allegations the company failed to adhere to certain requirements relating to its supervisory responsibilities as a Connecticut registered Broker-Dealer.  This settlement was reflected in a June 9, 2014 Consent Order with the firm.

“This settlement reflects many months of hard work by our Securities Division.  I commend them for their diligent and thorough work in continuing to protect Connecticut’s investing community,” stated Commissioner Pitkin. “While on a larger scale, this type of administrative action represents what our office does on a daily basis to enforce Connecticut laws.”

The Consent Order alleged that the firm failed to establish, enforce, and maintain an adequate supervisory system, particularly with respect to supervisor access to employee e-mail; the outsourcing of external e-mail surveillance to third party contractors, including a third party contractor in Chennai India; and ensuring that individuals who supervised the India third party contractor personnel performing the outsourced work held appropriate licenses.  In addition, the Consent Order alleged that the firm 1) failed to maintain its records in a form readily accessible to the Commissioner and failed to make those records readily available to agency staff during an examination; and 2) failed to keep certain compliance records true, accurate, and current.

The Consent Order fined MSSB $5 million and directed the firm to cease and desist from regulatory violations.  In addition, the order required that the firm 1) complete a targeted supervisory and quality control review within six months and ensure that supervisory personnel involved in e-mail surveillance maintain all required securities licenses; 2) within twelve months, implement a system to ensure that branch supervisory personnel had direct access to e-mailed communications sent or received by specified employees during the previous 120 days; 3) within twelve months, implement procedures to make required books and records open to inspection and readily accessible to agency staff; 4) within twelve months conduct training within the firm's legal department to more efficiently address the treatment of legally privileged documents; and 5) within twelve months, implement a separate quarterly quality control procedure to measure the effectiveness of external e-mail review.

A copy of the Consent Order may be found on the Department of Banking’s website