The U.S. Commodity Futures Trading Commission (CFTC) has fined brokerage firm Morgan Stanley $280,000 for ignoring "numerous red flags" relating to a Ponzi scheme. The CFTC found that Morgan Stanley permitted accounts to be opened despite paperwork problems and then ignored numerous other red flags while the accounts were traded. The accounts were maintained in the name of a family of companies called SureInvestment, a purported hedge fund that turned out to be a Ponzi scheme.
The accounts were opened and operated by Benjamin Wilson, the owner of SureInvestment, as part of a $35 million Ponzi scheme based in the U.K.. The accounts were subject to Morgan Stanley’s Enhanced Due Diligence and Customer Identification Program procedures, which required Morgan Stanley to "know its customer" and to be alert for any "red flags" regarding suspicious activity prior to opening an account. But Morgan Stanley accepted and opened the accounts despite audits filled with typos and other suspicious irregularities for an entity that turned out not to exist. Morgan Stanley also apparently failed to enforce trading limits it assigned to the accounts. Morgan Stanley appears to have been asleep at the switch and happy to pocket trading commissions without regard for the safety of customers and the integrity of the markets.
The CFTC’s Enforcement Director stated that firms like Morgan Stanley, must adhere to rigorous internal controls, such as "know your customer" procedures in order to protect customers and the markets from fraud and corruption.
Many investment frauds maintain accounts with brokerage firms, which could lead to liability for the brokerage firm to investors who lost their money in the Ponzi scheme. Dimond Kaplan & Rothstein, P.A.'s investment fraud lawyers have represented thousands of investors throughout the United States and South America in claims against brokerage firms and bank that played a role in or assisted Ponzi schemes and other investment frauds.
