WASHINGTON (9/16/14)-- The U.S. Commodity Futures Trading Commission (CFTC) announced Monday that it has imposed a fine against Morgan Stanley Smith Barney LLC (Morgan Stanley) for failure to "diligently supervise" the opening and handling of accounts under "know your customer" rules.
The CFTC said its order requires Morgan Stanley to pay a $280,000 civil monetary penalty and to disgorge commissions it earned from the subject accounts in order to address its "unlawful conduct."
Specifically, the CFTC order finds that Morgan Stanley "failed to diligently supervise its officers', employees', and agents' opening and handling of accounts held at Morgan Stanley in the name of a family of companies called SureInvestment."
SureInvestment is purported to operate a hedge fund based, in part, in the British Virgin Islands, which is deemed a "high-risk jurisdiction" under Morgan Stanley's compliance procedures. That designation, said the CFTC, should have subject the entity's accounts to special scrutiny and due diligence, assuring that employees were alert to any red flags by SureInvestment's account opening documents.
The CFTC order found that despite numerous red flags presented by SureInvestment's account opening documents, which the agency said included audits "filled with typos and other suspicious irregularities for an entity that turned out not to exist," Morgan Stanley opened the accounts. The order alleges that that these accounts were ultimately used by the owner of SureInvestment to continue an ongoing $35 million Ponzi scheme based in the United Kingdom. Earlier this year, that owner was sentenced to seven years imprisonment after pleading guilty to criminal charges brought by the U.K. Financial Conduct Authority, a CFTC release said.