The Securities and Exchange Commission today announced that Morgan Stanley Investment Management has agreed to pay $8.8 million to settle charges that one of its portfolio managers unlawfully conducted prearranged trading known as “parking” that favored certain advisory client accounts over others.
The portfolio manager and a brokerage firm trader who assisted the schemes agreed to be barred from the securities industry and pay penalties in the settlement. The brokerage firm, SG Americas, agreed to pay more than $1 million to settle the SEC’s charges.
An SEC investigation found that while managing accounts that needed to liquidate certain positions, Sheila Huang arranged sales of mortgage-backed securities to SG Americas trader Yimin Ge at predetermined prices that would enable her to buy back the positions at a small markup into other accounts advised by Morgan Stanley. Huang also sold additional bonds at above-market prices to avoid incurring losses in certain accounts, but she repurchased them at unfavorable prices in a fund that she managed without disclosing it to the disadvantaged fund client.
“Instead of playing by the rules, Huang engaged in prearranged trading schemes that benefited some clients while harming others,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Morgan Stanley failed to uncover Huang’s misconduct due to its lack of supervisory oversight and failure to implement policies specifically addressing prearranged trades.”
SEC Press Release