Two men share securities regulation news

Breaking news and expert analysis on legal and compliance issues

[Back To Home][Back To Archives]

From Securities Regulation Daily,December 22, 2015

Morgan Stanley pays $8 million to settle 'parking' charges

By Rodney F. Tonkovic, J.D.

Morgan Stanley Investment Management Inc. agreed to pay over $8 million to settle charges arising from unlawful prearranged trades conducted by a former portfolio manager. The Commission found that the portfolio manager sold to and prearranged repurchases from a broker-dealer at predetermined prices, a practice known as "parking," in violation of the antifraud provisions of the securities laws and of prohibitions on cross trades. In addition to monetary penalties, the Commission barred the portfolio manager and the brokerage firm trader who assisted the scheme from the securities industry (In the Matter of Morgan Stanley Investment Management Inc. and Sheila Huang, Release No. 33-9998, and In the Matter of SG Americas Securities LLC and Yimin Ge, Release No. 33-9999, December 22, 2015).

Summary. The Commission found that portfolio manager Sheila Huang arranged sales of mortgage-backed securities to trader Yimin Ge, and employee of broker-dealer SG Americas Securities, at predetermined prices. Within a few days, Huang would buy back the positions at a small markup into other accounts advised by Morgan Stanley. This "parking" of bonds at SG Americas favored certain advisory client accounts over others – in some cases, the purchasing clients, and in others the sellers – despite the fact that buying and selling clients were owed the same fiduciary duty.

Additionally, by using a broker to effectuate these trades, Huang evaded Morgan Stanley's internal cross trade requirements. This conduct also resulted in violations of regulatory prohibitions on cross trades. Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit said: "Instead of playing by the rules, Huang engaged in prearranged trading schemes that benefited some clients while harming others." He added that "Morgan Stanley failed to uncover Huang's misconduct due to its lack of supervisory oversight and failure to implement policies specifically addressing prearranged trades."

The Commission found that Huang and Morgan Stanley willfully violated the antifraud provisions of the securities laws and the Investment Advisers Act. SG Americas violated Exchange Act Section 17(a) and Rule 17a-3(2) by failing to make and keep accurate books and records and by failing to supervise Ge.

Sanctions. Both Morgan Stanley and SG Americas were censured. Morgan Stanley was ordered to pay a civil penalty of $8 million. SG Americas was ordered to pay disgorgement of $198,338, plus prejudgment interest of $12,755, and a civil penalty in the amount of $800,000.

Huang and Ge were barred from association and from serving as officers or directors for five and three years, respectively; Ge was also barred from participating in penny stock offerings. Huang was ordered to pay a $125,000 civil penalty, and Ge was ordered to pay $25,000.

The releases are Nos. 33-9998 and 33-9999.

Companies: Morgan Stanley Investment Management, Inc.; SG Americas Securities LLC

MainStory: TopStory BrokerDealers Enforcement FraudManipulation InvestmentAdvisers InvestmentCompanies

Securities Regulation Daily

Introducing Wolters Kluwer Securities Regulation Daily — a daily reporting service created by attorneys, for attorneys — providing same-day coverage of breaking news, court decisions, legislation, and regulatory activity.


A complete daily report of the news that affects your world

  • View full summaries of federal and state court decisions.
  • Access full text of legislative and regulatory developments.
  • Customize your daily email by topic and/or jurisdiction.
  • Search archives for stories of interest.

Not just news — the right news

  • Get expert analysis written by subject matter specialists—created by attorneys for attorneys.
  • Track law firms and organizations in the headlines with our new “Who’s in the News” feature.
  • Promote your firm with our new reprint policy.

24/7 access for a 24/7 world

  • Forward information with special copyright permissions, encouraging collaboration between counsel and colleagues.
  • Save time with mobile apps for your BlackBerry, iPhone, iPad, Android, or Kindle.
  • Access all links from any mobile device without being prompted for user name and password.