Morgan Stanley paying $500K to settle SEC charges

WASHINGTON -- Morgan Stanley on Monday agreed to pay a $500,000 penalty to settle federal regulators' charges that it misled customers in its Nashville office about the money management firms it recommended and from which it received commissions.

The Securities and Exchange Commission announced the agreement with the big Wall Street brokerage firm, which did not admit or deny wrongdoing but did agree to refrain from future violations of the securities laws.

The SEC also charged William Keith Phillips, a former investment adviser in Morgan Stanley's Nashville branch office. That case is pending. Through his attorney, Phillips disputed the SEC's allegations.

"Mr. Phillips denies any impropriety and he does intend to vigorously contest this," said his attorney Ron Harris.

Phillips depended on Morgan Stanley's legal and compliance personnel to ensure that proper disclosures were made and does not believe his actions violated SEC rules, Harris said.

The alleged misconduct occurred from 2000 to early 2006, the SEC said. Contrary to disclosures to clients, Phillips recommended some money management firms that had not been approved to participate in Morgan Stanley's advisory program.

"Morgan Stanley said one thing and did another when recommending money managers who had not been properly vetted by the firm, and Phillips repeatedly disregarded Morgan Stanley's policies and procedures and reaped undisclosed financial benefits from these unapproved managers," Scott Friestad, the associated director of the SEC's enforcement division, said in a statement.

Phillips, who was a top revenue producer, steered clients to three unapproved management firms that paid at least $3.3 million in commissions and fees to Morgan Stanley and him, the SEC said. The company and Phillips failed to disclose to clients the potential conflict of interest.