Morgan Stanley Fraud Lawsuits

Morgan Stanley Stock Fraud. Morgan Stanley was investigated by the five different regulatory bodies (the SEC, NASD, New York Attorney General, NYSE, and NASAA) between 1999 and 2001. The investigations revealed that Mary Meeker, Morgan Stanley's lead telecom analyst, among others, deliberately gave dishonest stock advice to investors. During the telecom boom, part of Mary Meeker's job was to evaluate the potential of various investment banking firms interested in having Morgan Stanley underwrite IPOs they were developing. Initially she did this with her typical discretion, a discretion that had earned her a reputation as one of the market's wisest forecasters.

As the telecom boom accelerated, however, Mary Meeker's much sought after approval become increasingly easier to win. Soon she was co-authoring stock analyst reports so that Morgan Stanley could use the clout of her signature to endorse potential investment banking clients with greater regularity. Despite hemorrhaging losses to the stocks she had endorsed, Meeker kept these ratings high through the telecom bust. The investigation concluded that Meeker was not maintaining these high ratings because she sincerely anticipated the stocks to recover but rather because she was serving the financial interests of investment banking clients at the expense of investors.

The investigation also found that Morgan Stanley had paid other firms to publish research on its underwriting clients with out disclosing the payments and that it paid its analysts based on the amount of investment banking business they generated. The SEC also created a list of stocks which Morgan Stanley's analysts had supported with unrealistic and biased reports. These include: Ebay, I Beam Broadcasting, Convergys, Vertias Softare, Transmeta and Loudcloud (Opsware).

In December of 2002 Morgan Stanley was fined $1.65 million, and in April of 2003 at the conclusion of the 2002 investigation Morgan Stanley agreed to pay $125 million as part of a massive settlement that required the top ten brokerage firms to pay out almost a billion and a half dollars. Morgan Stanley was also sued by LVMH (Moët Hennessy Louis Vuitton) on charges similar to those filed by the SEC, namely: conflicts of interest had contributed to dishonest stock reports. LVMH is claiming that Morgan Stanley put its financial interest in Gucci, an LVMH competitor, above its legal obligation to give investors an honest and accurate estimate of stock value.

Even more recently Massachusetts securities regulators have accused the Morgan Stanley Back Bay office of offering its brokers illegal cash prize incentives for selling its own company-owned mutual funds to investors. Regulators reported Morgan Stanley brokers at the Back Bay office were put into teams and competed against each other for sales. In one contest a $15,000 prize was offered to the top selling team in a region, so long as the team also achieved 70 percent of its sales goal. Morgan Stanley branch managers were also given the opportunity to earn $100,000 bonuses on top of $92,000 salaries if their teams sold well. Additionally, selling these company-owned funds gave the brokers more lucrative commissions than other sales. As a result of all these extra incentives, sales of Morgan Stanley funds in February produced $25,804 in commissions, compared to 356$ in commissions for sales of nonaffiliated funds and since January of 2003 Morgan Stanley earned between a whopping 5 million and 8 million on commissions alone. Yet nevertheless, neither the illegal contests nor the high commissions on the company-owned stock were disclosed to clients.

Worst of all, while the brokers earned, the investors lost. Morningstar shows that nearly 60% of the funds in the Morgan Stanley stable were below-average performers over the last three years increasing to around 74% in the last year. Massachusetts Secretary of the Commonwealth William Galvin, who headed the security regulatories conducting the investigation, said that the state is determined to recoup the millions of dollars in commissions that Morgan Stanley swindled through illegal sales tactics. Private attorneys are also determined to do the same for investors who have suffered financially because of these practices. If you are some one you love was injured by Morgan Stanley's deceitful, illegal and overly aggressive sale tactics, you are not alone. Please contact us for free legal advice.

If you have experienced losses with Morgan Stanley contact us to review your legal options.


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