SEC fines Morgan Stanley for part in trader scheme

The Securities and Exchange Commission has fined Morgan Stanley & Co. LLC $4 million for its role in a trader scheme that brought down a Connecticut-based brokerage firm.

The SEC found that the New York City-based financial services corporation violated market access rules by failing to have risk management controls in place that would have kept sales trader David Miller from entering online orders for Apple stock that exceeded his employers’ daily trading limits. 

The SEC charged Miller, a former employee of Rochdale Securities LLC, with fraud in April and sentenced him to 30 months in prison for purchasing 1.625 million unauthorized shares of Apple stock work $1 billion, according to a news release. 

Miller was hoping to split the profits with the customer that had originally authorized the purchase of 1,625 shares of Apple. If the stocks dropped, the SEC said Miller planned to claim he made an error when placing the order. 

But the SEC found that Morgan Stanley’s electronic trading desk increased Rochdale’s $200 million daily trading limit to $500 million and later to $750 million to allow the order to go through but never checked with the company to make sure the increases were warranted.  

“Broker-dealers become important gatekeepers when they provide customers direct access to our securities markets, and in this case Morgan Stanley did not live up to that responsibility,” the SEC’s Director of Enforcement Andrew Ceresney said in a news release Wednesday. 

“Morgan Stanley failed to have reasonable controls in place to mitigate the risks associated with granting market access to a customer.”