Reported by Mason Braswell

Morgan Stanley has agreed to pay $2 million as part of a settlement with Massachusetts state securities regulators based on allegations that it helped a former First Republic CEO sell company stock ahead of the San Francisco bank’s collapse. 

Massachusetts Secretary of the Commonwealth William F. Galvin accused Morgan Stanley of ignoring a “series of red flags” regarding the former executive’s sale of more than $6.8 million in First Republic stock. The former CEO, who was not named in the settlement but was identified earlier by the Wall Street Journal as founder James Herbert II, avoided “a near complete loss” by selling before the bank’s stock sharply declined in March 2023. 

Although Morgan Stanley prohibits its brokers from processing trades for a customer if they believe the transactions are based on non-public information, employees at the bank had “removed a notation” identifying the former CEO as an affiliate, “which caused several internal compliance checks to be removed,” according to the regulator. 

Even the reviews that Morgan Stanley did conduct were not meaningful, Galvin alleged. In one case, monitoring officers concluded after “only one minute” that there was no relationship between the customer and First Republic, “something that could have been easily identified through a straightforward internet search,” according to the consent order. Massachusetts did not accuse the First Republic founder of actually engaging in insider trading. 

Read full report: https://www.advisorhub.com/morgan-stanley-to-pay-2-million-over-first-republic-insiders-stock-sales/