Date
25 May 2017
Morgan Stanley is accused of allegedly running high-pressured sales contests in which brokers could earn thousands of dollars for selling securities-based loans. Photo: Reuters
Morgan Stanley is accused of allegedly running high-pressured sales contests in which brokers could earn thousands of dollars for selling securities-based loans. Photo: Reuters

Morgan Stanley charged with running unethical sales contests

Morgan Stanley has been charged with “dishonest and unethical conduct” by securities regulators for pushing its brokers to sell loans to their clients.

Massachusetts State Secretary William Galvin said the bank ran high-pressured sales contests in which brokers could earn thousands of dollars for selling so-called “securities-based loans.” (SBLs)

The sales were made in Massachusetts and Rhode Island, Reuters reports. 

The contests, designed to boost business, were officially prohibited by Morgan Stanley but turned out to be lucrative for the bank with the pace of loan origination tripling and adding US$24 million in new loan balances, Galvin said.

The charges against Morgan Stanley come one month after Wells Fargo was fined for fraudulently opening accounts.

Securities based loans let clients borrow against the value of their investment accounts but involve certain risks including the bank’s ability to sell securities to repay the loan.

Morgan Stanley said the complaint has no merit and that the company plans to defend itself vigorously.

“The securities-based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent,” spokesman James Wiggins said in a statement.

Galvin said Morgan Stanley executives were slow in discovering the improper sales contests, failed to shut them down immediately, and downplayed the risk associated with the SBLs.

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