SEC, Morgan Stanley settle charges related to inverse ETFs
The wirehouse is settling charges related to single inverse ETF investments it recommended to advisory clients, many of whom experienced losses.
Morgan Stanley has agreed to pay an $8 million penalty and admit wrongdoing to settle charges related to single inverse ETF investments it recommended to advisory clients, the Securities and Exchange Commission said Tuesday in a release.
The SEC’s order said that Morgan Stanley did not adequately implement its policies and procedures to ensure that clients understood the risks involved with purchasing inverse exchange-traded funds, which typically are unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.
The SEC said the firm failed to obtain such client disclosure notices from several hundred clients, and that Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts where the securities were held long-term. Many of the clients experienced losses.
The SEC’s order further finds that Morgan Stanley failed to follow through on another key policy and procedure requiring a supervisor to conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client. Among other compliance failures, Morgan Stanley did not monitor the single-inverse ETF positions on an ongoing basis and did not ensure that certain financial advisers completed single inverse ETF training, the SEC said.
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