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Compliance February 9, 2010
Vermont City Files FINRA Complaint against Morgan Stanley
The city of Burlington, Vermont, has filed a regulatory complaint
against Morgan Stanley alleging that the firm’s consultants sold the
city pension fund investments that caused it to lose $21 million.
Reported by Fred Schneyer
A Boston Globe news report said the city is accusing Morgan Stanley of recommending investments that generated the investment company the highest fees. The city made public its complaint with the Financial Industry Regulatory Authority (FINRA) after getting City Council approval to file the FINRA action.
The text of the Council resolution authorizing the complaint said Morgan Stanley advised the selection of primarily investment managers who participated in Morgan Stanley’s Vision program and who paid direct and/or indirect compensation to Morgan Stanley related to their participation in that program; such investment managers underperformed appropriate benchmarks for portfolios they managed; Morgan Stanley imposed “excessive” investment management fees, trading and execution costs; and “reaped additional excessive compensation through principal trading practices and other conduct.”
The Burlington pension fund had $112 million in assets in 2006, the last year it did business with Morgan Stanley, according to the complaint.
Meanwhile, according to the Globe, Morgan Stanley denied wrongdoing, saying in a statement: “The performance of the City’s retirement fund during the 16-year period that Morgan Stanley served as investment consultant for the fund was favorable and consistent with the benchmarks set by the City.’’