Morgan Stanley, Washington state end dispute

The state of Washington and Morgan Stanley on Friday put to rest a dispute over unsuitable investment advice given to Microsoft employees, with the investment bank and brokerage paying $200,000 and agreeing to make changes to its business practices.
The dispute went back to the drawing board in May after state officials in Washington, home to Microsoft Corp headquarters in Redmond, withdrew a settlement agreement with Morgan Stanley, saying that the pact would have been difficult to enforce.
Morgan Stanley sued. A closed hearing was scheduled for last week but was postponed as negotiations took place.
The new agreement spells out more clearly the enforcement of the original agreement, said Scott Kinney, a state spokesman, while the original penalties and sanctions remained the same.
But Morgan Stanley disagreed, saying that the original agreement had remained intact and that the issue was settled because Thurston County Superior Court Judge Thomas McPhee had told the state that it must accept the original judgement.
"Neither the agreements nor the side letter has changed," said Morgan Stanley spokeswoman Andrea Slattery. "The only difference is that the regulators now acknowledge what they previously denied - that they are bound by our original agreement."
Friday's order by Judge McPhee, obtained by Reuters, said that the original agreement, signed on May 18, was valid and enforceable.
At issue was advice Morgan Stanley gave to several Microsoft employees, who saw the value of their stock options climb during the technology stock boom.
Washington state charged in its original complaint, served against the firm in late 2003, that Morgan Stanley brokers pushed Microsoft employees to cash out stock options early to make risky investments or to borrow against the value of their options.
As part of Friday's agreement, Morgan Stanley will watch more closely whether customer accounts are being managed in a risky manner and also implement better training for its employees.
Morgan Stanley also agreed to pay $25,000 to a former client, $75,000 to the Investor Protection Trust, a non-profit promoting investor education and $100,000 to reimburse the state's investigation costs.
"These supervisory revisions will result in better oversight of Morgan Stanley customer accounts throughout the country," said Michael Stevenson, director of the Securities Division of the state's Department of Financial Institutions.
Washington state scrapped its original agreement with Morgan Stanley after reviewing it with the state's top lawyer, because it would have been too difficult to enforce.