Tags: Morgan Stanley

From an investor's perspective, Morgan Stanley has just had to confess that the ultimate nightmare has come true: the firm has lost CD-ROMs containing personal information on 34,000 clients.

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The firm mailed the data to the New York State tax department in June, but somewhere within the government offices the discs themselves disappeared.

Morgan reportedly conducted an "exhaustive" -- and likely somewhat frantic -- search for the discs before breaking down and letting the clients know that they were gone in a June 24 letter.

This desire to save face exposed those clients to a two-week period in which their Social Security numbers, brokerage account numbers, and other key information were subject to misuse.

Morgan tried to soften the blow by promising that "we have no evidence that your sensitive account information has been misused."

But the discs are still out there, reportedly password-protected but not encrypted in any way. Let's hope they turn up, untampered with.

The clients have been offered a free year of credit report monitoring service from Experian. 

Tags: FINRA

Whether you blame Madoff or simply an impression that FINRA is "soft" on brokers, the regulator has promised deeper branch-level exams coming in the next few years.

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Rick Ketchum, who runs FINRA, says he's added 20 district coordinators to his staff, bringing the total number of personnel assigned to supervision to 90.

This will give the regulator more resources to really drill down into separate branches, instead of just focusing on the head office.

The word "point of sale" has come up, which means the examiners will be spending more time on site -- historically a more fertile territory for uncovering problems.

And over the next two to three years, he promises a more high-tech forensic accounting system will emerge in which FINRA crunches the numbers on all member firms to gauge risk and compliance.

The news that FINRA is getting tough might actually reassure those who consider the regulator -- funded by the securities industry firms it it charged to police -- soft on bad sales practices.

Otherwise, as at least one watchdog group has noted, rewarding FINRA by handing it oversight over RIAs as well makes little sense.

Tags: alternative investments

Raymond James has agreed to buy back $300 million in auction-rate securities to settle claims that its affiliates sold the instruments as being as good as cash, while a judge gave Morgan Keegan a pass.

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On the Raymond James front, eight states brokered the settlement, which also includes $1.7 million in fines. 

While the firm previously claimed it would fight any attempt to get it to buy back the securities it sold before the credit markets seized up in 2008, it has also been proactive in getting the issuers to cash out clients at every opportunity over the last few years.

Three years ago, Raymond James clients owned about $2.1 billion in the instruments, so a $300 million buyback is a lot better for the firm than it could have been.

Separately, Morgan Keegan beat an auction-rate complaint of similar scope. 

Although the firm sold plenty of the paper, reportedly without disclosing the risks, an Atlanta judge threw out the most recent claim that one-time clients have lodged.

As William S. Duffey Jr. notes -- in a note of sanity for a "due diligence"-crazed industry -- the only crime that Morgan Keegan committed was failing to predict that the market in these instruments would go south.

And, he concludes, that's a long way from securities fraud.

Tags: sec

For RIAs on the edge of the $100 million line that will soon divide state from SEC supervision, life just got a little brighter.

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It turns out that the SEC is letting advisory firms with assets under management between $90 million and $110 million choose their regulator.

This gives these firms some vital flexibility when it comes to market-driven AUM fluctuations in particular.

Otherwise, if the $100 million limit mandated by Dodd-Frank was strictly enforced, RIAs on the edge could find themselves having to switch from SEC to state regulation after a bad market day, only to switch back once the markets recover.