Shares Of Morgan Stanley Sink After Multiple Federal Regulators Probe Wealth-Management Practices

Shares of Morgan Stanley stumbled in the late afternoon trading session in New York after The Wall Street Journal reported multiple federal regulators are probing the investment bank/financial services company over how it vets wealthy clients who are at risk of laundering money through its massive wealth-management division. 

According to people familiar with the investigation, the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and other Treasury Department offices are investigating the wealth management arm's process of identifying prospective clients and the sources of their wealth. 

The federal agencies are also investigating whether the investment bank's unit monitors its clients' financial activity. The WSJ report noted, "Some of the probes are focused on the bank's international clients."

In a separate investigation, WSJ noted in November that the Federal Reserve launched a probe into the wealth management unit to determine whether the investment bank had sufficient controls to prevent money laundering from foreign customers. 

The bank has few affluent foreign customers, but it manages about $5 trillion in assets for clients. In the last half-decade, it has hired financial advisers who specialize in catering to offshore clients, many in Central and South America. 

In 2020, the Fed found Morgan Stanley lacked internal vetting controls over foreign customers. As a result, the Fed asked the bank to fix these problems, and when the Fed returned a year later, the issues were not fixed.  

Wealth management is a significant source of revenue for Morgan Stanley. It has grown the division to nearly 50% of overall revenue - and helps the bank offset downturns in trading and deal-making activity. 

WSJ's report also noted: 

The SEC last year sent Morgan Stanley a list of current and former clients with questions about how they were vetted. It also questioned why Morgan Stanley's financial-adviser unit, which works directly with affluent individuals, did business with some clients who were cut off by E*Trade, the Morgan Stanley-owned digital trading platform, because of red flags.

The SEC's list includes a billionaire with ties to Russia who has been sanctioned by the U.K. and an individual who claimed she was based in the U.S. but whose activity on E*Trade indicated she was located on a Caribbean island and had more money in her account than would be typical for someone with her stated occupation. 

Shares of Morgan Stanley stumbled 5% on the report. 

Wonder what countries the probe is focused on. Russia?