Morgan Stanley has settled the lawsuit from the U.S. Security Exchange Committee and pays the penalty. The company’s equity management business unit offered inverse exchange-traded fund (ETF) investments without properly informing the risk to its clients
In its official statement, the Security Exchange Committee said that Morgan Stanley Smith Barney has agreed to pay the $8 million penalty over its wrongdoing in inverse ETF investment offer to its client. Smith Barney is the equity management business unit of Morgan Stanley that has changed its name to become Morgan Stanley Wealth Management in 2012.
SEC announces its findings that Morgan Stanley offered inverse ETF to its clients without informing the risk involved with the derivatives investment properly. Furthermore, the firm has failed to obtain clients’ disclosure notice from hundreds of them which stated the clients’ understanding of the risk in the inverse ETF investments. As a result, many clients have experienced losses in their inverse ETF investments.
In the aftermath of the lawsuit, Morgan Stanley chief U.S. equity strategist, Adam Parker left the firm’s equity business, Reuters reported. Parker will become the director of quantitative strategy in hedge fund Eminence Capital. Morgan Stanley has appointed its chief investment officer in the Morgan Stanley Wealth Management to take the additional position which previously held by Parker.
The inverse exchange-traded fund (ETF) is the derivatives investment products which built up from various derivatives with the purpose to take profit from the declining value of underlying benchmark. Inverse ETF investment is made by taking many varieties of short term positions in a combination of advance investment strategis to gain from the bearish price. For this characteristics, inverse ETF is often nicknamed as “Bear ETF.”
As an alternative investment, inverse ETF has a very high risk of losses, which was experienced by many of the Morgan Stanley’s clients. Following the investigation, SEC finds the firm has failed to provide sufficient policies and procedures to protect its clients from the risks in purchasing inverse ETF investments.
Watch the promotional video from Morgan Stanley to offer alternative investments below:
