(Adds Morgan Stanley comment, rank in IPO fees, byline)
By Jonathan Stempel
May 6 A Wall Street regulator fined a Morgan
Stanley wealth management unit $5 million on Tuesday for
supervisory failures related to the sale of shares to retail
customers in 83 initial public offerings, including Facebook Inc
and Yelp Inc.
The Financial Industry Regulatory Authority, Wall Street's
self-funded regulator, said Morgan Stanley Smith Barney LLC
lacked adequate procedures and training to ensure that sales
staff distinguished between "indications of interest" and
"conditional offers" when soliciting investors for IPOs whose
registration statements had not yet become effective.
Finra said the lapses occurred from Feb. 16, 2012, to May 1,
The regulator said the unit treated the phrases
interchangeably, even though indications of interest lead to
share purchases only if investors reconfirm them, while
conditional offers to buy can result in binding share purchases
unless investors revoke them.
"Customers must understand when they are entering a contract
to buy shares in an IPO," Finra's enforcement chief, Brad
Bennett, said in a statement. "There must not be ambiguity
regarding the customer's obligations given the significant legal
differences between an indication of interest and a conditional
offer to buy."
The regulator said the confusion was the result of Morgan
Stanley's effort to reconcile different policies at Morgan
Stanley and Citigroup Inc, which had created Morgan
Stanley Smith Barney in a 2009 joint venture. Morgan Stanley
took full ownership of the business last June.
Morgan Stanley was the world's largest underwriter of IPOs
by fees in 2013, with a 9.5 percent share, according to Thomson
Reuters data. It was the lead underwriter of Facebook's IPO in
May 2012, which came two months after Yelp went public.
Morgan Stanley neither admitted to nor denied the charges.
It also agreed to a censure by Finra.
In September 2012, Morgan Stanley Smith Barney was renamed
Morgan Stanley Wealth Management, but its broker-dealer
designation remained Morgan Stanley Smith Barney LLC.
"Morgan Stanley Wealth Management is committed to offering
our clients participation in initial public offerings in
accordance with applicable Finra rules and we have enhanced our
practices on this point," a spokeswoman said.
(Reporting by Jonathan Stempel in New York; Editing by Jeffrey
Benkoe, Meredith Mazzilli and Leslie Adler)