Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, December 18, 2007

SEC Charges Two Former Morgan Stanley Advisors with Market Timing

The SEC recently filed a civil fraud action against  two former Morgan Stanley DW, Inc. (MSDW) financial advisors, Darryl  A. Goldstein and Christopher O'Donnell, for allegedly engaging in  a  fraudulent  market timing scheme. The  SEC alleged that  Goldstein  and  O'Donnell engaged  in  a  number  of  deceptive practices to defraud at least 50 mutual  fund  companies  and  their  shareholders by circumventing the funds'  restrictions  on  market-timing.  The conduct alleged occurred from January  2002  until  August  2003  and generated approximately  $1  million  in net commissions or asset-based fees for the  defendants. 

In    a  related  administrative  proceeding,  Morgan  Stanley  &  Co. Incorporated (MS&Co.), as successor to MSDW, consented to the issuance of  a  Commission  order  which  found  that MSDW failed reasonably to supervise  four  financial  advisors  who engaged in  the fraudulent market timing scheme and also allowed multiple mutual fund  trades  to  be placed or amended after the 4:00 p.m. ET close of trading  but  priced  at  the net asset value determined at the market close. Without  admitting or denying the findings, MS&Co. consented to a censure and an order to pay disgorgement,  including  prejudgment  interest,  of  $5,120,000 and a penalty of $11,880,000, for a total of $17 million.

In  another  related  administrative  proceeding,  Marc  H. Plotkin, a former  MSDW financial advisor who worked with Goldstein, consented to the  issuance of a Commission order which found that Plotkin willfully aided  and  abetted  and  caused  securities fraud violations  Without admitting or denying the findings, Plotkin  consented to an order to pay a civil  penalty  of  $90,000 and to be barred from association with any broker,  dealer,  or  investment adviser with the right to reapply for association  after  one year.

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