- As part of the settlement, Morgan Stanley is required to review and improve its internal policies to better oversee stock sales.
- The matter focuses on a former executive’s trading activities during the bank’s collapse.
Massachusetts securities regulators imposed a $2 million fine on Morgan Stanley for failing to properly monitor insider trades tied to First Republic Bank, Reuters reported. The case revolves around the bank’s lack of oversight of a former First Republic executive’s trading activities during a turbulent period that led to the bank’s collapse.
In a consent order disclosed last Friday, Massachusetts regulators revealed that Morgan Stanley did not ensure that the former First Republic insider, whose account they held, was not trading on material nonpublic information. Although the bank neither admitted nor denied wrongdoing, it agreed to settle the case. A spokesperson for Morgan Stanley stated that the firm was “pleased to have resolved the matter.”
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Morgan Stanley’s Role In First Republic’s Collapse
The Wall Street Journal reported that James Herbert II, the former executive chairman of First Republic Bank, is believed to be the individual at the heart of the case. While Herbert was not named as a respondent in the Massachusetts settlement, regulators focused on Morgan Stanley’s role in managing his trades. The oversight came to light as part of a broader investigation into First Republic’s insider sales during its turbulent final months.
In early 2023, a string of U.S. bank failures, including that of First Republic, rocked the global banking industry. Insider trades conducted by executives during this period attracted intense scrutiny from regulators. Massachusetts Secretary of the Commonwealth William Galvin launched a probe into First Republic’s stock sales in March 2023, examining how insiders handled their trades and whether proper policies were in place to prevent any wrongdoing.
According to the consent order, a Morgan Stanley managing director based in California oversaw the trades in question. Regulators found that the bank did not verify whether the trades were being made using privileged, nonpublic information. In addition to the $2 million fine, Morgan Stanley must now review and strengthen its internal policies to better scrutinize stock sales by officers of public companies.
