The U.S. Financial Industry Regulatory Authority has censured and fined Morgan Stanley & Co., Inc. for failing to make public disclosures required by the rules governing research analyst conflicts of interest.

FINRA said Tuesday that it fined the firm US$800,000 over allegations that, from April 2006 to June 2010, Morgan Stanley issued equity research reports that failed to disclose accurate information about the relationships the firm, or its analysts, had with companies covered in its research reports. Overall, these inaccuracies resulted in approximately 6,836 deficient disclosures in about 6,632 equity research reports and 84 public appearances by research analysts.

The deficient disclosures relate to a variety of issues including:
– analysts’ holdings in a company;
– the firm receiving investment banking and other revenue from companies;
– its role as a manager, or co-manager, of a public offering;
– its role as a market maker; and
t- he charts used for securities covered in equity research reports.

FINRA also says that the firm failed to disclose in customer account statements that it had independent, third-party research, available too, which was part of its’ deal with the Securities and Exchange Commission under the 2003 Research Analyst Settlement.

The regulator says that in determining the proper sanctions in this case, it considered the firm’s own review and self-reporting of some of its disclosure violations and remedial steps taken by the firm. In settling the case, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

In addition to the censure and fine, Morgan Stanley must review a sample of its research reports and certify to FINRA that they comply with FINRA’s research analyst conflict-of-interest rules. These reviews and certifications must take place every six months for two years.

“This case strikes at the heart of FINRA’s research disclosure requirements, which were written in response to scandals involving research analyst conflicts of interest,” said James Shorris, FINRA executive vice president and acting chief of enforcement. “Here, thousands of Morgan Stanley research reports did not include accurate information about the firm’s relationships with the companies it covered, depriving potential investors of important information.”

IE