NASD accuses Morgan arm of violating norms

NASD accuses Morgan arm of violating norms
AGENCIES

WASHINGTON, NOV 21: More than $2 billion in bond-related mutual funds sold to investors by one of Wall Street’s most powerful players weren’t all they were cracked up to be, according to regulators.

The National Association of Securities Dealers’ regulatory arm, in a civil administrative complaint filed Monday, alleges that Dean Witter Reynolds, now a unit of Morgan Stanley Dean Witter, violated the anti-fraud provisions of securities laws by misstating the risks of $2.1 billion of closed-end bond funds sold in 1992 and 1993.

The bond funds, marketed to 106,000 individual investors by Dean Witter before that firm’s parent merged with Morgan Stanley in 1997, plunged roughly 30% after interest rates rose in 1994, the complaint says. The result, according to the NASD: Nearly 30,000 investors who sold the shares incurred a total of $65 million in losses. A spokesman for Morgan Stanley Dean Witter calls the complaint by NASD Regulation “unfounded,” and says the firm will contest it.

That is unusual; brokerage firms typically seek to settle such administrative actions at the time they are filed. The complaint underscores the heightened effort by Wall Street regulators to crack down on what they view as questionable sales techniques. In 1998, NationsBank (now Bank of America), agreed to pay a total of $6.8 million, without admitting or denying the charges, to settle civil allegations by the NASD and the SEC.