Record fine for Morgan Stanley


Financial Correspondent

A record pounds 240,000 fine was yesterday imposed on the global investment bank Morgan Stanley for unauthorised trading in derivatives that cost its clients $28m (pounds 18.6m).

It is the largest financial penalty ever handed out by London's regulator of investment banks, the Securities and Futures Authority (SFA).

Five private clients suffered total losses of $28m in 1992 due to a trader who ran up massive speculative positions in the currency markets. The highly leveraged deals, one involving an open position in the lira worth $100m, came unstuck during the exchange rate mechanism crisis that year.

The record fine is a blow to Morgan Stanley's standing as a highly respected Wall Street firm. Last autumn it came close to rescuing SG Warburg, Britain's premier merchant bank, but the takeover talks came to nothing.

Morgan Stanley, whose European operations are headed by Sir David Walker, is also to pay undisclosed costs to the SFA. The joint statement by the SFA and the bank yesterday said that, following the discovery of the deals, which broke the firm's internal limits, "Morgan Stanley conducted an internal review and promptly took steps to improve its procedures".

One client who suffered losses and was subsequently compensated by Morgan Stanley was Robert Louis-Dreyfus, the former chief executive of Saatchi & Saatchi who is now chairman of Adidas, the German sports equipment group.

Publicity over the settlement between the SFA and Morgan Stanley had been delayed pending settlement of disciplinary action against Burkhard Brauch, a former vice-president of Morgan Stanley International in London.

But press reports forced the SFA to announce yesterday that Morgan Stanley had breached rules "in the manner in which it organised, conducted and supervised foreign exchange business for five private clients in 1992". The SFA said the bank had admitted it "failed to ensure that dealing on four of those accounts remained suitable for the clients and was not too frequent in the circumstances".

The bank sacked Mr Brauch at the end of 1992. He is taking legal action against it for unfair dismissal and damages. Morgan Stanley is suing Mr Brauch for $30m through the London courts.

The SFA is seeking a date for an independent tribunal to judge the disciplinary case against Mr Brauch, a German national now living in Madrid. The tribunal will be held in London and Mr Brauch's case will be heard in absentia if he is not available, an SFA source said.

In an agreed statement, the bank admitted that "contract notes were not sent to the clients in respect of foreign exchange transactions, and statements and valuations did not disclose the underlying transactions or the open positions".

"Records available to the management did not show marked to market positions and the firm did not adequately monitor the amount of margin which had to be paid by four of the clients," the SFA said.

Four of the clients have agreed to accept compensation from Morgan Stanley - some had emerged with "negative equity" on their investments following the unauthorised trading.

One client, Universal Consult (UK), refused to settle with the bank until the conclusion of the SFA's investigation. It is understood to be keen to increase its settlement with the bank.

Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
i100This Instagram photo does not prove Russian army is in Ukraine
Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Morrissey pictured in 2013
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
ebookA unique anthology of reporting and analysis of a crucial period of history
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
Field of broken dreams: Andy Bell visits Passchendaele
news5 News's Andy Bell visited the killing fields of the Great War, and his ancestor - known only from his compelling war diary - came to life
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In my grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel