Morgan Stanley revealed it’s under the microscope of the U.S. Securities and Exchange Commission (SEC) regarding the handling of advisory account cash balances. These balances, swept into affiliate bank deposit programs, have raised questions from the SEC’s enforcement division since April.
The financial giant has been in discussions with the SEC about its adherence to the Investment Advisers Act of 1940. This legislation mandates that firms providing compensated investment advice must follow regulations designed to safeguard investors’ interests.
Advisory accounts, which offer clients various investment strategies for a fee, may include a mix of stocks, bonds, mutual funds, exchange-traded funds, and cash. The cash sweep feature in these accounts allows clients to earn returns on uninvested funds.
In a related disclosure, Morgan Stanley announced a conditional settlement reached last month to resolve a 2017 lawsuit tied to the initial public offering (IPO) of Danish marine fuel supplier OW Bunker. The lawsuit accused the underwriters, including Morgan Stanley, of misleading institutional investors during OW Bunker’s 2014 listing. OW Bunker filed for bankruptcy within months of the IPO after incurring nearly $300 million in hedging losses.
