Morgan Stanley has agreed to pay millions over allegations that its wealth management division failed to properly monitor stock sales by a First Republic executive in the months leading up to the California lender's collapse last year.
Morgan Stanley will pay $2 million to settle the investigation by the Massachusetts Securities Division, according to a spokesperson for the regulator. Regulators accused Morgan Stanley's Executive Financial Services unit, or EFS, of not providing necessary oversight of trades executed by a former First Republic executive shortly before its failure. The Wall Street Journal later identified the executive as James Herbert II, the former executive chairman of First Republic.
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A representative for Morgan Stanley, which neither admitted nor denied the allegations, said the bank was pleased to have resolved this matter. Herbert was not charged with insider trading.
The Department of Justice was reviewing stock trading by some of First Republic Bank's employees during the lender's collapse, Bloomberg reported in May last year. The department was looking into whether anyone working at the firm used inside information in transactions as it was crumbling into the second biggest failure in American banking history, before being acquired by JPMorgan Chase.
