Record fine for Morgan Stanley
Wednesday 31 May 1995
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.
- 3 The enemy within: People who hear voices in their heads are being encouraged to talk back
- 4 Phil Neville backtracks on Tomas Rosicky 'I'd smash him' comments from Match of the Day 2
- 5 British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Paris attacks: Do not call Charlie Hebdo killers 'terrorists', BBC says
UK weather: Snow to fall in the coming week with sub-zero temperatures to last until early February
Asteroid narrowly scrapes past Earth: how to watch the closest space rock for decades as it flies by
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Prince Philip set to be knighted by Australia: Celebrate by reading his greatest gaffes
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...