Morgan Stanley Rep Violated Reg BI With ETF Sales: FINRA

The Financial Industry Regulatory Authority has fined a Morgan Stanley rep $7,500 and suspended her for seven months for violating Regulation Best Interest through sales of ETFs.

According to FINRA's order, Laura Casey bought and sold products that included sales charges in the brokerage accounts of four retail customers who also held advisory accounts at Morgan Stanley, without considering the comparative costs of the transactions.

Between March and July 2022, several of Casey's advisory clients at Morgan Stanley also opened brokerage accounts.

Without authorization, Casey exercised discretionary authority to purchase and sell securities on a short-term basis, according to the order.

Specifically, over a 10-day period in July 2022, Casey purchased products, including ETFs, "which required the customers to pay upfront sales charges that the customers would not have had to pay had the products been purchased in their advisory accounts," the order states.

Casey then sold the securities within days of purchase, resulting in additional sales charges.

In certain instances, "Casey used the proceeds to make additional purchases, which resulted in additional sales charges," the order states. "Casey did not have a reasonable basis to believe that placing these trades in the brokerage accounts was in the customers' best interests in light of their intended short holding periods and the associated costs."

Casey effected at least 46 trades in at least seven brokerage accounts without first speaking to the customers on the date of the transactions, the order states.

The rep also did not obtain prior written authorization from the customers to effect the transactions. In addition, Morgan Stanley did not accept any of the accounts as discretionary.

Collectively, Casey's trades subjected the four customers to $37,758 in unnecessary sales charges. However, Morgan Stanley identified Casey's misconduct and reversed the transactions, according to the order.

"As a result, the customers did not pay any unnecessary sales charges and Casey did not earn any commissions as a result of the trades at issue," the order states.

With the actions, Casey violated Reg BI's care obligation and FINRA Rule 2010.