“The Securities and Exchange Commission is considering enforcement actions against Morgan Stanley because of its sales practices involving mutual funds, the Wall Street firm said,” writes Tom Lauricella in today’s Wall Street Journal.

“Morgan Stanley disclosed in a routine quarterly filing that it had received two notices from the SEC in recent weeks involving the potential charges following an investigation into the firm’s fund sales practices. The company had confirmed in a July filing that its fund sales activity was under investigation by the SEC and that it was cooperating with regulators.”

“In the latest filing, Morgan Stanley also revealed that in July the firm had received a subpoena from the New York attorney general’s office requesting information related to possible abuses in trading mutual-fund shares. It didn’t elaborate on that matter.”

“Morgan Stanley said one of the notices about potential SEC charges, which are often called Wells notices, was delivered on Sept. 23. It said that the SEC was weighing charges based on the firm’s failure to adequately disclose compensation that Morgan Stanley received from fund companies for selling their products as well as a failure to adequately disclose compensation arrangements for its brokers.”

“Also possible are charges over Morgan Stanley’s ‘favored sale’ of fund company’s products based on brokerage commissions that Morgan would receive from those fund companies, the filing said.”

“On Oct. 8, the SEC sent Morgan Stanley a second Wells notice saying that it was considering charges regarding the firm’s practices for selling certain share classes of its mutual funds, “among other things,” according to the filing.”

“Morgan Stanley’s methods for selling mutual funds have received active attention from regulators recently. In September Morgan Stanley settled charges filed by the National Association of Securities Dealers over its fund sales practices. In that matter, the firm didn’t admit or deny wrongdoing but agreed to pay a $2 million fine. The NASD had charged that the firm improperly provided incentives to its brokers to sell Morgan Stanley funds over those run by outside fund companies.”

“Meanwhile, Morgan Stanley faces two sets of civil charges in Massachusetts over its fund sales practices. The Massachusetts Securities Division has charged Morgan Stanley with failing to disclose to clients sales incentives and contests the firm ran to promote sales of its in-house funds. Many of those contests and incentives were also the subject of the NASD charges. Morgan Stanley is facing a separate set of administrative charges from Massachusetts, which allege that the firm misled investigators about the existence of the incentive programs.”