March 27, 2014

CFTC Orders Morgan Stanley Smith Barney LLC to Pay $490,000 to Settle Charges Relating to Rules and Regulations Pertaining to Segregated and Secured Amount Funds

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Morgan Stanley Smith Barney LLC (MSSB), a registered Futures Commission Merchant (FCM), for violating CFTC rules governing secured funds of foreign futures and option customers, commingling customer and firm funds, failing to prepare accurate daily computations of its segregated and secured funds, failing to properly title account statements for four customer segregated accounts, and failing to diligently supervise its employees handling of matters related to its business as a CFTC registrant. None of the violations resulted in any customer losses, according to the CFTC’s Order. The Order requires MSSB to pay a $490,000 civil monetary penalty and to cease and desist from violating the Commodity Exchange Act and CFTC Regulations, as charged.

Specifically, the CFTC’s Order finds that on April 8, 2013, MSSB erroneously transferred approximately $16 million from a customer secured funds bank account resulting in a deficiency in MSSB’s secured funds of approximately $9.27 million. MSSB discovered the error the next day and cured the deficiency, the Order finds. After its secured deficiency in April 2013, MSSB independently engaged KPMG LLP to review its policies and procedures with respect to segregated and secured accounts. KPMG subsequently issued a report recommending changes to MSSB’s policies and procedures, which MSSB has substantially implemented, according to the Order.

The CFTC’s Order also finds that for approximately a six-month period in 2012, MSSB commingled customer segregated and firm funds in a customer segregated bank account.

In addition, for approximately an eight-month period in 2012, MSSB failed to prepare accurate daily computations of its segregated and secured funds, according to the Order. None of the errors caused MSSB to fall below its required segregated or secured funds; however, MSSB was required to refile 120 daily statements as a result of the errors, the Order finds.

Finally, the CFTC’s Order finds that during several months in 2012, account statements for four MSSB segregated accounts were improperly titled as customer secured accounts.

CFTC Division of Enforcement staff responsible for this matter are Allison Passman, David Terrell, Joseph J. Patrick, Ava Gould, Scott R. Williamson, and Rosemary Hollinger. The Division thanks the Commission’s Division of Swaps and Intermediary Oversight and the National Futures Association for their assistance in this matter.

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Last Updated: March 27, 2014