WSJ: NH Filing Charges Against Morgan Stanley

June 18, 2004 ( - New Hampshire is coming after Morgan Stanley for allegedly coaxing brokers to sell in-house mutual fund and variable annuities with noncash incentives.

The New Hampshire Bureau of Securities Regulation, in a draft petition expected to be filed in an administrative proceeding, will seek a $500,000 fine against Morgan Stanley.   Additionally, the state alleges a broker for the New York-based investment firm improperly urged clients to buy unregistered penny stocks, according to a Wall Street Journal report.

New Hampshire is focusing on contests Morgan Stanley held in 2002 dubbed “the Steak-a-thon.”   Under these arrangements, financial advisors that sold $10,000 of proprietary mutual funds would receive one steak; $30,000, two steaks; and $100,000, three steaks, the Journal report says, citing the draft petition.   The Bureau of Securities Regulation said it found at least 35 instances of such steak awards in New Hampshire.

The charges could be filed as early as today, the Journal report said.

This is not the first time Morgan Stanley has been caught up in allegations of improper broker compensation.   As Morgan Stanley spokeswoman Andrea Slattery confirmed to the Journal, the brokerage house agreed to pay $50 million to settle charges that it failed to tell investors about compensation it received for selling certain mutual funds.  Additionally, without admitting or denying the charges, Morgan Stanley agreed to provide more disclosure about its relationships with mutual fund groups (See  Morgan Stanley Confirms Spitzer, SEC Fund Probe Ties ).

Slattery also told the Journal that the firm terminated the broker in the penny-stock case more than three years ago, and settled matters with clients.