James Gorman’s bank and the Massachusetts securities regulator on Wednesday agreed to settle a probe into allegations that Morgan Stanley ran a highly improper sales contest to boost its book of securities-based loans.
Morgan Stanley did not admit or deny any wrongdoing but agreed to pay the state $1 million.
The Post last year reported exclusively on the sales contest.
Gorman’s bank rewarded brokers 35 to 50 basis points of their increase in loans once they reached certain thresholds, according to a statement of facts in the 24-page consent order.
Nine percent of clients in Morgan Stanley’s MetroWest-RI regional complex had securities-based loans in 2013. That number rose to 12 percent and 15 percent over the next two years, according to the order.Financial advisers soon turned against one another and referred to the sales process in terms of winning and losing — and who was in the lead — according to internal e-mails included in the settlement.
“Have I or my admin won anything[?]” one banker wrote in a March 2014 internal e-mail. “We have done tons of [loans].”
Last year, another former Morgan Stanley broker, Jerry Mitchell, told The Post that the sales contests were also used in Florida.
Finra is investigating the bank’s sales contest practices, sources have told The Post.
“Morgan Stanley is pleased to resolve this matter with the Massachusetts Securities Division,” bank spokeswoman Christy Jockle said in a statement Wednesday.
Bank brass knew of the contests.
Securities regulations bar such contests because they promote conflicts of interest between the bank’s employees and its clients.
From 2013 to 2015, the bank organized Massachusetts financial advisers into teams and boosted the compensation of those who sold the most securities-based loans to wealthy clients, Massachusetts Secretary William F. Galvin’s office said in its settlement with the bank.
The contest, internally referred to as a “Business Development Allowance” pilot program, was not disclosed to clients. While against regulations, the contests worked.