Morgan Stanley Fined $2 Million by Massachusetts Regulators

(Reuters) – Massachusetts securities regulators have fined Morgan Stanley $2 million for failing to adequately monitor trades by a First Republic Bank (OTC:FRCB) insider before the bank’s collapse, according to a spokesperson for the regulator and a consent order disclosed on Friday.

Morgan Stanley held the account for a former First Republic insider, failing to confirm that the individual was not trading based on material nonpublic information at the time. This settlement was first reported by the Wall Street Journal.

The consent order indicated that Morgan Stanley proposed a settlement on Sept. 3 without admitting or denying any wrongdoing. A spokesperson for the bank expressed satisfaction in having resolved the matter.

The resolution from the Massachusetts Secretary of the Commonwealth does not name the insider, but the Wall Street Journal identified him as James Herbert II, who was the then-executive chairman of First Republic.

While Massachusetts regulators did not name Herbert as a respondent, the spokesperson noted that he could not be reached for immediate comment.

In March 2023, Secretary Galvin announced an investigation into stock sales by First Republic insiders, issuing subpoenas for information about the bank’s insider trading policies and how its officers managed their stock sales for that year.

The insider stock sales were managed by a Morgan Stanley managing director based in California, according to the consent order released.

Early in 2023, numerous failures within U.S. banks stirred turmoil in the global banking sector, with executives’ sales during this period facing increased scrutiny from regulators.

Besides the fine, Morgan Stanley is required to enhance its policies to ensure greater scrutiny over officer sales in public companies.