Galvin Hits Morgan Stanley with Annuity Probe Subpoena

January 20, 2005 ( - Massachusetts Secretary of State William Galvin has subpoenaed Morgan Stanley as part of a probe of whether brokerages kept payments received from insurers to sell variable annuities a secret.

Galvin told the Associated Press that the Morgan Stanley information demand was issued in the past few days and that his office has not yet received a response. Galvin said the investigation was in an early stage. “Essentially, it is pay-to-play compensation to push certain products,” he said in an interview with The Associated Press.

The Bay State official told the AP that his office also has recently issued subpoenas to “other entities” as part of the same probe into sales of variable annuities, which provide annuities payments, a death benefit and the option to invest in the stock market through separate mutual fund accounts. Galvin wouldn’t identify who else had gotten such subpoenas and didn’t divulge any other details.

Morgan Stanley spokeswoman Andrea Slattery said in a statement to the AP that the firm is “confident that our practices in this area are appropriate, and have been properly disclosed.” She declined further comment.

The subpoenas come as investigators in Massachusetts and elsewhere are increasingly focusing on secret payments from insurers beyond regular broker commissions and the influence those payments have on brokers who are supposed to represent clients’ interests rather than steer business to carriers offering the highest fees.

The National Association of Securities Dealers, an industry organization, is conducting its own review of Morgan Stanley’s variable annuities sales practices, Galvin said.

The scrutiny of Morgan Stanley comes as Galvin’s office also pursues a previously disclosed complaint against the firm alleging it failed to properly disclose extra payments received for selling mutual funds. A judge’s ruling is expected soon in that case, Galvin said.