In Focus
April 25, 2003
s investors await final SEC approval of the $1.4 billion global settlement among the major wirehouses for misleading and conflicted analyst research reports, one wirehouse largely has escaped the worst of the regulatory allegations. That's Morgan Stanley Dean Witter. The SEC determined that while MSDW's bullish research reports might not have contained timely data and updated information, the firm (and its research star Mary Meeker) was not as culpable as its brethren, such as Merrill Lynch, Salomon Smith Barney and Credit Suisse First Boston.
Of course, let's not forget that last December, MSDW was fined millions of dollars (along with Deutsche Bank Securities, Goldman, Sachs, Salomon, U.S. Bancorp Piper Jaffray) for failure to preserve email communications. Who knows what those emails might have revealed. We certainly know what they revealed with Merrill, Salomon and Credit Suisse.
And it is clear that MSDW has lots of improvements to make to better serve its customers and its financial advisers. First, consider the recent arbitration award rendered in favor of two MSDW financial advisers. They won over $500,000 because the firm did not pay them appropriate compensation under its "Finders Program."
Second, another arbitration panel awarded $900,000 to MSDW customers, finding that MSDW's speculative investment recommendations did not square with the customers' investment objectives of income and preservation of capital. Indeed, punitive damages were awarded due to the "egregious trading and apparent lack of supervision."
Finally, one cannot overlook all of the heat that regulators and the press are placing on MSDW for its rampant sales of B-share (back-end load) mutual funds instead of other, often less expensive alternatives. As reported in the April 1st edition of the Wall Street Journal, the SEC and the NASD are asking why 90% of all mutual funds sold by MSDW are B-shares. Mutual fund A-shares (front-end load) might have been less expensive, especially with large purchases (see article, Ensure That You Receive Your Mutual Fund "Breakpoint" Discounts).
So, stop smiling, MSDW!
— James J. Eccleston
FinancialCounsel.com
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