Sheila Huang, the then portfolio manager at Morgan Stanley, was found to arrange sales of mortgage-backed securities to SG Americas trader Yimin Ge at predetermined prices in 2011 and 2012.
The arrangement would enable Huang to buy back the positions at a small markup into other accounts that Morgan Stanley advised, SEC said.
Huang sold the bonds to Ge at above-market prices and repurchased them at a small markup over the sales price.
The repurchase was prearranged by an unregistered fund, which Huang managed and advised at Morgan Stanley.
Through these trades, Huang moved close to $600,000 in previously unrealized losses from the selling accounts to the unregistered Morgan Stanley fund.
SEC enforcement division asset management unit co-chief Marshall Sprung said: "Instead of playing by the rules, Huang engaged in prearranged trading schemes that benefited some clients while harming others.
"Morgan Stanley failed to uncover Huang’s misconduct due to its lack of supervisory oversight and failure to implement policies specifically addressing prearranged trades."
SG Americas also agreed to pay more than $1m to settle charges with SEC.
Image: Morgan Stanley to settle prearranged trading charges with US SEC. Photo: courtesy of JanPietruszka / FreeDigitalPhotos.net.
