“The New York Stock Exchange censured and permanently barred a former Morgan Stanley broker from the securities industry for the alleged theft of more than $56 million in client funds from the firm’s San Juan, Puerto Rico, office,” writes Ann Davis in today’s Wall Street Journal.

“Carlos H. Soto, a longtime broker of Dean Witter Reynolds and its successor firm, Morgan Stanley, faces trial next month on federal securities-fraud charges.”

“In addition, the Securities and Exchange Commission has frozen his accounts and is seeking to sell any of his remaining assets to reimburse victims.”

“Wealthy Puerto Rican clients entrusted Mr. Soto, 59 years old, with as much as $7 million at a time. And the Puerto Rican unit of one of Guatemala’s oldest banks invested as much as $40 million, according to records filed in U.S. District Court in Puerto Rico.”

“Mr. Soto has failed to account for at least $17 million, according to the exchange, which also noted in a decision released yesterday that he failed to comply with its requests for testimony and information.”

“The alleged fraud is among the largest involving a broker from a big securities firm in recent years. It has led regulators and victims to question the major Wall Street brokerage firm about the failure of its internal controls to detect the thefts for more than a decade.”

“Morgan Stanley said it has restored some clients’ assets and continues to cooperate with authorities.”

” ‘We continue to work with clients to resolve the individual issues that arose out of Mr. Soto’s activities,’ ” said a spokeswoman.”

“An attorney for Mr. Soto couldn’t immediately be reached.”

“After being confronted by a branch manager this past February, Mr. Soto faxed the manager a letter explaining that he attracted conservative clients by making them ‘think they were investing in relative low-return instruments,’ when instead he used their money to make speculative trades and sent them fabricated account statements. The confession letter was filed in court proceedings to freeze Mr. Soto’s accounts.”

“He was arrested February 18.”