Morgan Stanley Fined $13 Million for Short-Term Trades of UITs

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Erez Law is currently investigating Morgan Stanley Smith Barney LLC financial advisors across the country regarding short-term trades of unit investment trusts (UITs).

According to the FINRA news release, the regulatory agency fined Morgan Stanley $3.25 million and required the firm to pay approximately $9.78 million in restitution to more than 3,000 affected customers for failing to supervise its representatives’ short-term trades of UITs.

UITs are investment companies that offer a fixed portfolio, generally of stocks and bonds, as redeemable units to investors for a specific period of time, often 15 or 24 months. UITs are designed to provide capital appreciation and/or dividend income. However, they impose charges including a deferred sales charge and a creation and development fee that can be around 3.95%. If a customer sells UITs before the maturity date, they will incur increased sales charges. When advisors sell UITs and roll over the funds into a new UIT, suitability concerns are often in question.

The FINRA investigation found that between January 2012 and June 2015, hundreds of Morgan Stanley representatives executed short-term UIT rollovers in thousands of customer accounts. FINRA found that Morgan Stanley failed to supervised sales of UITs by providing guidance to supervisors regarding how they should review UIT transactions to detect short-term trading. It is alleged that Morgan Stanley failed to implement an adequate system to detect short-term UITs and did not conduct training for UITs. Additionally, it was fold that some advisors sold UITs less than 100 days before the fund’s end.

Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Morgan Stanley may be liable for investment or other losses suffered by its customers.

Erez Law represents investors in the United States for claims against Morgan Stanley Smith Barney LLC financial advisors across the country regarding short-term trades of UITs. If you were a client of Morgan Stanley or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.

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Author: Jeffrey Erez

The founder of Erez Law, Jeffrey Erez, focuses exclusively on securities arbitration and litigation. Mr. Erez passionately believes in representing aggrieved investors and obtaining justice for his clients through litigation.