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Morgan Stanley Fined by FINRA for Failure to Supervise Relating to Unit Investment Trusts (UITS)

The Doss Firm

Morgan Stanley Smith Barney, LLC was fined by the Financial Industry Regulatory Authority (FINRA) for “failing to supervise its representatives’ short-term trades of unit investment trusts (UITs).”  Approximately 3,000 of Morgan Stanley Smith Barney’s customers were affected. The firm was required by FINRA to pay approximately $3.5 million in fines and $9.78 million in restitution to the affected customers.

As outlined by FINRA, a “UIT is an investment company that offers units in a portfolio of securities that terminates on a specific maturity date, often after 15 or 24 months. UITs impose a variety of charges, including a deferred sales charge and a creation and development fee, that can total approximately 3.95 percent for a typical 24-month UIT. A registered representative who repeatedly recommends that a customer sell his or her UIT position before the maturity date and then “rolls over” those funds into a new UIT causes the customer to incur increased sale charges over time, raising suitability concerns.”

It was discovered by FINRA, that hundreds of representatives for Morgan Stanley “executed short-term UIT rollovers, including UITs rolled over more than 100 days before maturity, in thousands of customer accounts” during a period from January 2012 to June 2015. FINRA found that representatives’ sales were not adequately supervised, and that Morgan Stanley did not provide sufficient guidance to Morgan Stanley supervisors on how to review UIT transactions to discover unsuitable short-term trading. Furthermore, FINRA determined that Morgan Stanley did not have adequate training regarding UITs or a supervisory system in place to detect short-term UIT rollovers.

Susan Schroeder, FINRA Executive Vice President and Head of Enforcement, explains that “Due to the long-term nature of UITs, their structure, and upfront costs, short-term trading of UITs may be improper and raises suitability concerns. Firms must adequately supervise representatives’ sales of UITs –including providing sufficient training –and have in place a system to detect potentially unsuitable short-term UIT rollovers.”

Are your investments suitable for your financial goals and risk tolerance? Have you suffered losses that you did not anticipate and feel as though your broker did not adequately explain the risks associated with your investments? Contact The Doss Firm, LLC at (855) 534-4581 for a free consultation to discuss your legal rights.

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