Morgan Stanley Could Face Action Over Incentives

Morgan Stanley, the second-biggest U.S. securities firm, is likely to be charged by the Securities and Exchange Commission on Monday with failing to disclose incentives related to mutual fund sales, CNBC reported Friday, citing an unidentified person.

Morgan Stanley said in a regulatory filing last month that the SEC was considering taking action over “the company’s alleged failure to disclose the sources, types and amounts of compensation received by it from investment companies for selling their products.”

In September, Morgan Stanley was fined $2 million by the NASD, formerly the National Assn. of Securities Dealers, for giving brokers incentives such as Britney Spears concert tickets to sell the firm’s mutual funds over those of competitors.

The report of likely new charges comes almost seven months after Morgan Stanley and nine other firms agreed to a $1.4-billion settlement over allegations that analysts published misleading research.

The charges would be distinct from those that have recently grabbed headlines in the widening probe of the $7-trillion mutual fund industry. Those other allegations involve improper trading of mutual fund shares, not initial sales of shares.

Morgan Stanley also has disclosed that it had received a subpoena in July from New York Atty. Gen. Eliot Spitzer relating to possible late trading and market-timing of its mutual funds.

The SEC and Morgan Stanley didn’t return calls.