U.S. Markets closed

Morgan Stanley to pay U.S. SEC $8.8 mln in 'parking' scheme case

(Adds details on "parking" and Morgan Stanley policies)

By Suzanne Barlyn

Dec 22 (Reuters) - A Morgan Stanley unit will pay $8.8 million to settle charges that one of its portfolio managers conducted pre-arranged trades that favored certain clients' accounts over others, the U.S. Securities and Exchange Commission said on Tuesday.

The portfolio manager, Sheila Huang, agreed to be barred from the industry and pay a $125,000 penalty, according to the settlement between the SEC, Morgan Stanley Investment Management Inc and Huang. A Societe Generale brokerage unit trader who assisted Huang in the schemes also agreed to be barred, the SEC said.

Neither Morgan Stanley nor Huang admitted or denied the SEC's findings. Huang, whose lawyer declined to comment, can seek permission to work in the industry again in 2020.

Pre-arranged trading, or "parking," is a fraudulent practice that can give advantages to some investors over others, including better pricing and the elimination of risk.

Huang's schemes occurred in 2011 and 2012, the SEC said. In one, Huang, while managing accounts that needed to liquidate certain positions, arranged sales of mortgage-backed securities at predetermined prices to the trader at the Societe Generale brokerage unit, SG Americas.

The arrangement would enable Huang to buy back the positions at a small markup into other accounts that Morgan Stanley advised, the SEC said.

The SG Americas trader, Yimin Ge, can seek permission to work in the industry again in 2018, according to the settlement. Ge's lawyer declined to comment.

Both firms issued statements saying they had cooperated with the SEC and were pleased to have resolved the case.

Compliance policies in place at Morgan Stanley addressed potential misconduct, but not so-called "parking," the SEC said. What's more, the firm did not train employees during the period of Huang's schemes about avoiding parking, the SEC said.

Morgan Stanley also lacked policies to identify trades such as those by Huang, who sold and repurchased the same bonds in the same sizes and at identical markups, the SEC said.

"These circumstances indicated that the series of trades were not separate and distinct arm's-length sale and repurchase transactions," the SEC wrote in its settlement.

Morgan Stanley has since improved its procedures, oversight and training, the SEC said.

(Reporting by Suzanne Barlyn; Editing by Dan Grebler)