Massachusetts securities regulators have fined Morgan Stanley $2 million for failing to properly oversee trades made by a First Republic Bank insider before the bank collapsed, according to a spokesperson for the regulator and a consent order disclosed on Friday.
Morgan Stanley managed the account of a former First Republic insider but did not confirm with the customer that the individual was not trading on material nonpublic information at the time. The Wall Street Journal first reported the settlement.
The consent order, issued on September 3, indicates that Morgan Stanley proposed the settlement without admitting or denying any wrongdoing. A spokesperson for the bank expressed satisfaction with the resolution of the matter. The Massachusetts Secretary of the Commonwealth’s settlement with Morgan Stanley did not disclose the name of the insider, but the Wall Street Journal identified the individual as James Herbert II, the former executive chairman of First Republic.
Though Massachusetts regulators did not name Herbert as a respondent, their spokesperson confirmed the omission. Herbert was not immediately available for comment. In March 2023, Massachusetts Secretary of the Commonwealth William Galvin announced an investigation into stock sales by First Republic insiders, issuing a subpoena to the bank to obtain details on its insider trading policies and how executives managed stock sales during that period.
According to the consent order, a Morgan Stanley managing director in California handled the First Republic stock sales. Early 2023 saw a wave of U.S. bank failures that unsettled the global banking sector, drawing regulatory attention to executive stock sales during the crisis.
In addition to the $2 million fine, Morgan Stanley must revise its policies to heighten scrutiny of stock sales by officers at public companies.
