Morgan Stanley Fined $5m for 83 IPOs Sold to Retail Customers

The Financial Industry Regulatory Authority has fined Morgan Stanley's wealth management unit $5m after it ruled that the Wall Street giant had supervisory failures related to the sale of shares from 83 IPOs to retail customers.

Finra said in a statement that Morgan Stanley had failed to put adequate procedures and training in place for staff to sell shares from IPOs, including Facebook and Yelp, to retail customers between 16 February 2012 and 1 May 2013.

"Customers must understand when they are entering a contract to buy shares in an IPO," said Brad Bennett, Finra's enforcement chief.

"There must not be ambiguity regarding the customer's obligations given the significant legal differences between an indication of interest and a conditional offer to buy."

Finra said that due to these failings, Morgan Stanley's staff were not able to distinguish between basic financial terms, such as between "indications of interest" and "conditional offers."

Since the staff used these phrases interchangeably, it led to the wrong types of solicitation of investors.

Finra added that the confusion between the financial terms resulted from the financial services firm's effort to reconcile different policies at Morgan Stanley and Citigroup, when it took full control of the Morgan Stanley Smith Barney 2009 joint venture in June 2013.

"Indications of interest" lead to share purchases only if investors reconfirm them. "Conditional offers" can result in binding share purchases unless investors revoke them.

Morgan Stanley said in a statement: "Morgan Stanley Wealth Management is committed to offering our clients participation in initial public offerings in accordance with applicable Finra rules and we have enhanced our practices on this point."