DOB: Morgan Stanley 2009 Consent Order

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IN THE MATTER OF:

MORGAN STANLEY & CO.
INCORPORATED

(CRD Number 8209)


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CONSENT ORDER

No. CO-09-7319-S

PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner (the "Commissioner") is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (the "Act"), and Sections 36b-31-2 et seq. of the Regulations of Connecticut State Agencies promulgated under the Act (the "Regulations");

WHEREAS, Section 36b-31(a) of the Act, provides, in relevant part, that “[t]he commissioner may from time to time make … such … orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive”;

WHEREAS, Section 4-177(c) of the Connecticut General Statutes provides, in relevant part, that “[u]nless precluded by law, a contested case may be resolved by . . . consent order”;

WHEREAS, the Commissioner finds that the entry of this Consent Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;

WHEREAS, Morgan Stanley & Co. Incorporated has been registered as a broker-dealer under the Act since July 23, 1970, and maintains its principal office at 1585 Broadway, New York, New York;

WHEREAS, Morgan Stanley DW Inc. (“MSDW”), formerly known as Dean Witter Reynolds, Inc. (CRD number 7556), was registered as a broker-dealer under the Act until July 10, 2007, maintained its principal office at 2000 Westchester Avenue LD, Purchase, New York and was an affiliate of Morgan Stanley & Co. Incorporated;

WHEREAS, MSDW merged into Morgan Stanley & Co. Incorporated on April 1, 2007 to form a single broker-dealer;

WHEREAS, the North American Securities Administrators Association, Inc. (“NASAA”) is a voluntary association whose membership consists of 67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico;

WHEREAS, commencing in August 2005, Morgan Stanley & Co. Incorporated and MSDW notified NASAA and individual state securities agencies that certain order entry systems in place at MSDW had not checked the registration status of certain securities transactions under state securities (or “Blue Sky”) laws; and that the surveillance problem included most fixed income securities and certain equity securities sold to customers in solicited and non-exempt transactions from at least 1995;

WHEREAS, Morgan Stanley & Co. Incorporated and MSDW apprised NASAA that the systems problem had been discovered in late May 2005; that, immediately upon detection of the problem, a team had been formed to examine the issues and correct the problem; and that the firms had conducted an internal investigation (the “Firm Investigation”) into the reasons why the affected order entry systems were not functioning properly;

WHEREAS, NASAA formed a multi-state task force (the “State Task Force”) to conduct a coordinated investigation into the activities of Morgan Stanley & Co. Incorporated, MSDW and their affiliates and assess the scope of the sale of unregistered securities in the affected jurisdictions;

WHEREAS, Section 36b-31(c) of the Act provides, in part, that:  “To encourage uniform interpretation and administration of sections 36b-2 to 36b-33, inclusive, and effective securities regulation and enforcement, the commissioner may cooperate with the securities agencies or administrators of other states, Canadian provinces or territories . . . [and] any national or international organization of securities officials or agencies, and any governmental law enforcement or regulatory agency.  The cooperation authorized by this subsection includes, but is not limited to, the following actions . . . (2) conducting joint . . . investigations; (3) sharing and exchanging information and documents subject to the restrictions of chapter 3; . . . and (5) executing joint agreements, memoranda of understanding and orders;”

WHEREAS, the Commissioner, acting pursuant to Sections 36b-31(c) and 36b-26 of the Act and through the Securities and Business Investments Division, joined with the State Task Force in conducting an investigation into the activities of Morgan Stanley & Co. Incorporated and MSDW to determine whether they, or either or them, had violated any provision of the Act or any regulation or order under the Act;

WHEREAS, Morgan Stanley & Co. Incorporated and MSDW voluntarily provided the State Task Force with the results of the Firm Investigation, which attributed the system deficiencies to the following:  (1) Broker workstations, the automated trading system used at the firms, did not have any type of Blue Sky block, or other exception report, for trades involving fixed income securities; (2) the firms’ Blue Sky surveillance system covered only securities contained in firm Blue Sky databases, which were maintained separately for Morgan Stanley & Co. Incorporated and MSDW.  Consequently, if the surveillance system did not locate a particular security in the Blue Sky database, the system would allow the transaction to proceed without conducting additional checks or creating an exception report; (3) the firms did not adequately populate the Blue Sky database with sufficient information, whether obtained through internal research or outside vendors, to properly review all transactions for compliance with state securities registration requirements; and (4) the firms did not allocate sufficient resources and personnel during the ten-year period to adequately manage issues involving compliance with state securities registration requirements;

RESULTS OF THE STATE TASK FORCE COORDINATED INVESTIGATION

WHEREAS, the coordinated investigation conducted by the State Task Force ascertained the following:

History of the Blue Sky Issue at Morgan Stanley
Blue Sky Compliance Pre-1995

1) Before 1995, brokers at Dean Witter Reynolds, Inc. (“Dean Witter”) entered customer transactions using paper order tickets and the internal electronic wire.  Dean Witter’s Blue Sky surveillance system compared orders (by CUSIP number) with information in its internal Blue Sky database, known as BSKS.
2) If the system detected a possible problem, it would allow the order to be filled, but it would list the trade on a next-day T+1 exception report.  Dean Witter’s Blue Sky Manager then reviewed the report and contacted the branch officers involved to determine whether particular trades had to be cancelled.
3) BSKS contained information on equities in which Dean Witter made a market, a total of about 1,200 to 1,500 stocks.  BSKS did not regularly contain information on fixed income securities unless the Blue Sky Manager was asked to manually enter such information by the fixed income trading area.
4) Where Dean Witter’s Blue Sky system could not locate a security in BSKS, it did not reflect its inability to find the security in a “security-not-found” or other exception report.
5) As a result, before 1995, Dean Witter had no surveillance system in place that would check for possible Blue Sky violations for most fixed income securities or equities in which Dean Witter was not making a market.

Automation of Trading Systems in 1995 Did Not Correct Blue Sky Compliance Issue

6) In 1995, Dean Witter began developing its automated order entry system, called the Financial Advisor Workstation (“Workstation”).  In addition to using the Workstation to enter customer orders, Financial Advisors (“FAs”) could use it to look up the Blue Sky status of securities in BSKS.  After a customer order was entered on the Workstation, the system compared securities (by CUSIP number) with information in BSKS and automatically blocked trades not meeting specified requirements, including transactions that potentially posed Blue Sky issues.
7) However, the Workstation design team noted that the system was not designed to block fixed income securities, observing that such a feature would be added in a later phase:  “As previously discussed, the Order Entry System will perform the Blue Sky validation on-line.  Initially, the Blue Sky and Compliance edits will be built into the Equity Ticket, while Blue Sky validation in Fixed Income Ticket will be added in a later phase.”  (emphasis added)
8) Until May 2005, no one on the Workstation design team or anyone else at the firm followed up on whether or when fixed income securities would be added to the Blue Sky validation process.
9) FAs using the Workstation to research the Blue Sky status of fixed income products did not receive either the requested Blue Sky information or a warning message to contact Compliance which resulted in the processing of fixed income transactions without the performance of proper Blue Sky checks.
10) In response to early complaints about the Workstation’s slowness, MSDW programmed the system to execute an order for equity securities regardless of whether the system had completed Blue Sky screening.  However, the system compared all such trades at the end of the day to BSKS and listed possibly violative transactions on the T+1 exception report.
11) In addition, MSDW did not include surveillance for Blue Sky compliance in the various trading platforms that it subsequently built out to support MSDW’s managed account business.  Although MSDW initially built and revised these systems over time, it failed to incorporate Blue Sky surveillance into these systems.
12) During the automation process in 1995, MSDW’s Blue Sky Manager advised the Compliance Director and the Deputy Compliance Director that the new automated system would require her to monitor more than 15,000 equity securities, rather than about 1,500 equity securities which she previously monitored.
13) During this time, the Firm, the Compliance Director and his deputy, failed to recognize the significant compliance issue that existed due to the pre-automation system not providing Blue Sky checks on many equities or fixed income securities.
14) To assist the Blue Sky Manager, MSDW bought a newly available automated Blue Sky information feed covering only equities from an outside vendor, Blue Sky Data Corp (“BSDC”) on April 11, 1996.  (An information feed for fixed income securities was not available until 1997.)  Upon buying the service, MSDW terminated the Blue Sky Manager’s only assistant.
15) The new BSDC equity feed resulted in a substantial increase of information (from 1,500 to 15,000 covered equities) causing the volume of possible Blue Sky violations appearing on the daily T+1 exception report to increase substantially, which overwhelmed the Blue Sky Manager.

Blue Sky Problem Not Detected Following the Merger

16) On or about May 31, 1997, Dean Witter merged with Morgan Stanley Group, Inc.  After the merger, the Blue Sky problems continued.
17) The predecessor Morgan Stanley Group, Inc. had conducted a retail business, including Blue Sky checking, through its relatively small Private Wealth Management Group (“PWM”), which served ultra-high net worth clients.
18) After the merger, the combined firm kept the two predecessor firms’ trading systems (including the corresponding Blue Sky systems) running parallel - one for MSDW and the other for PWM.  Beginning in 1998, MSDW’s Blue Sky Manager was assigned to monitor the PWM Blue Sky system as well, even though the Blue Sky Manager had difficulties with the increased review responsibilities created by the MSDW T+1 exception reports.
19) The two Blue Sky systems produced varying exception reports that identified transactions with possible Blue Sky violations.  For PWM this included all such trades, and for MSDW this included trades that had not been stopped by the front-end block then in place.
20) Morgan Stanley’s Blue Sky databases contained only a small amount of fixed income Blue Sky information entered manually over the years and did not cross-reference the information they each separately contained.
21) Beginning sometime in 1997, BSDC began offering a fixed income Blue Sky information feed, and on December 15, 1997, BSDC contacted Morgan Stanley to solicit the new fixed income feed.  Morgan Stanley elected to add BSDC’s fixed income feed to the PWM Blue Sky System, but not to MSDW’s Blue Sky system.
22) For the next eight (8) years, although some of Morgan Stanley’s employees in its compliance department were aware that MSDW did not have an adequate fixed income Blue Sky registration verification system, neither Morgan Stanley, nor any of its employees took any action to rectify the situation.

Blue Sky Violations Not Detected by Internal Audit

23) Morgan Stanley’s Internal Audit Department commenced an audit of Blue Sky surveillance in the Fall of 2002.  Internal Audit noted that the “objective of the audit was to assess whether adequate internal controls and procedures exist[ed] to ensure that Product Surveillance activity for …Blue Sky…[was] properly performed, documented, and monitored, in accordance with [Morgan Stanley] policy, applicable laws and regulatory requirements.”
24) The audit workpapers stated that a control objective was to ensure that the Blue Sky unit monitored “equity security trading activity” and “market maker securities and those securities recommended by Morgan Stanley’s Research Department,” but they did not mention the need to monitor fixed income trading activity nor securities beyond those where Morgan Stanley made a market or provided research coverage.
25) The Internal Audit revealed that fixed income, as well as other types of transactions, were reviewed.  In particular, workpapers show an October 29, 2002 trade in a particular bond which noted: “Bond originally was not blue sky available,” but found this trade was appropriately resolved, from a Blue Sky perspective, by “Signed Solicitation letter obtained from client acknowledging unsolicited order.”
26) Despite the fact that some fixed income transactions were reviewed, the Internal Audit failed to recognize that there were no hard blocks when a security was not found in the Blue Sky database.
27) While the workpapers from the Internal Audit concluded that Morgan Stanley’s performance was “adequate” for most Blue Sky surveillance activities, the workpapers also concluded that performance was “inadequate” in the area of communicating Blue Sky surveillance findings to management and commented that “there is no evidence of analysts/supervisory review over Surveillance Reports.”
28) In its final report dated July 31, 2003, the Internal Audit concluded, in part, that there were “[n]o control deficiencies noted” in the areas of “Exception Reporting” (“Review of daily exception reports”) and “Management Oversight / Monitoring” (“Supervision of Compliance analyst activities to ensure the adequacy of investigation and corrective action”).
29) After noting that the audit “evaluated the existence and the adequacy of the design of the monitoring mechanisms employed to ensure that key controls are operating effectively,” the report concluded that there were “[n]o findings . . . that warranted discussion with the Board Audit Committee.”

The State of Blue Sky Systems Existing in Early 2005

30) At the beginning of 2005, MSDW had in place an up-front order entry block, but it covered only transactions involving equities, certificates of deposit, mutual funds, managed futures, insurance, and unit investment trusts.  The block did not cover fixed income securities, apart from certificates of deposit.
31)

MSDW’s Blue Sky system did not contain information for all securities (especially fixed income) and failed to include any sort of “security-not-found” exception report to flag transactions in securities not contained in the Blue Sky database, resulting in no surveillance for such transactions.

32) Morgan Stanley & Co. Incorporated’s PWM Group operated on a different platform that never included any automated block to prevent execution of transactions possibly violating Blue Sky requirements.  Instead, Morgan Stanley & Co. Incorporated’s PWM system automatically generated a T+1 exception report covering both equities and fixed income securities containing possible Blue Sky violations.
33) At the beginning of 2005, MSDW’s Blue Sky policies and procedures had remained fundamentally unchanged for a decade.  While the policies articulated the obligation of individual FAs and branch managers to check for Blue Sky compliance, MSDW did not provide the FAs and branch managers with the proper tools to assist them in fulfilling their Blue Sky responsibilities, and did not require adequate monitoring systems to check for Blue Sky compliance.
34) Moreover, Morgan Stanley did not adequately staff the Blue Sky Manager’s office with sufficient resources and personnel to assist and supervise all securities transactions.

Recognition of the Blue Sky Surveillance Problem; Morgan Stanley's Self-Reporting to Regulators and Remediation Efforts

35) At the end of 2004, Morgan Stanley hired a new Compliance employee in the Policies and Procedures Group.  The employee came with considerable experience in Blue Sky and other surveillance related matters and soon was charged with managing certain surveillance functions.
36) On or about May 23, 2005, during a review of MSDW’s Blue Sky compliance surveillance, the employee learned that while MSDW had an equity Blue Sky feed from BSDC, it received no similar feed for fixed income securities.  The employee reported the situation to MSDW’s new Head of Compliance the following day.
37) Upon hearing the report, the Head of Compliance directed the employee to have MSDW acquire the fixed income feed from BSDC as soon as possible.  MSDW began receiving the fixed income feed from BSDC on May 30, 2005.
38) Morgan Stanley then took steps to assess the significance and extent of the gaps in surveillance.  A team of persons was formed in June 2005 to examine the issues.  The team worked through the balance of June and July in an effort to identify the deficiencies and to begin to immediately correct the problems.  In doing so, the team created a list of Blue Sky compliance requirements for all trading platforms and identified a list of Blue Sky compliance gaps.
39) On August 12, 2005, an Executive Director in the Regulatory Group of Morgan Stanley’s Law Division began the process of self-reporting the Blue Sky problem to state regulators.  Over the next couple of weeks, the Executive Director notified regulators in all fifty (50) states, the District of Columbia and Puerto Rico, as well as the National Association of Securities Dealers (“NASD”).  The head of the Regulatory Group had already given preliminary notice to the New York Stock Exchange (“NYSE”).
40) Upon receiving the fixed income feed from BSDC, MSDW made necessary system enhancements and conducted testing of the system enhancements, resulting in MSDW putting the fixed income feed into production on June 20, 2005.  The changes permitted a daily updating of MSDW’s internal Blue Sky database and allowed fixed income exceptions to appear on the daily T+1 report.
41) On or about July 15, 2005, MSDW developed a “security-not-found” report to address instances where the BSDC feed might not contain data for a particular security.  This report, generated on a T+1 basis, identifies all transactions in securities (by CUSIP number) not recognized by the Blue Sky database that could potentially violate Blue Sky laws.  Currently the security-not-found report covers both equities and fixed income transactions entered though the equity and fixed income order entry platforms on the Workstations.
42) On a daily basis, Compliance personnel analyze the security-not-found report to ascertain the Blue Sky registration or exemption status of the flagged transaction and make a determination regarding the Blue Sky status of the identified transactions prior to settlement date.   If they discover a transaction that violated Blue Sky restrictions, they instruct the branch that effected the transaction to cancel it.  When analyzing the report, Compliance personnel also update the Blue Sky database to include relevant information about the securities they research.
43) On or about July 29, 2005, MSDW programmed a hard block – i.e. a block an FA cannot override—that prevents the entry of fixed income transactions that could violate Blue Sky regulations.
44) MSDW has also refined the process to filter out transactions that qualify for certain exemptions that span all Blue Sky jurisdictions.  By eliminating the covered transactions, the system yields a smaller and more manageable pool of securities with potential Blue Sky issues for manual review by the Compliance Department.
45) In addition, MSDW directed its IT Department to examine all of MSDW’s trading platforms to determine the nature and scope of the Blue Sky compliance problem.  The review uncovered a gap in Blue Sky coverage for MSDW’s managed account platforms to the extent that such platforms include affiliated money managers or accommodate broker discretionary trading.  MSDW has taken the necessary steps to close the gaps in the managed account platforms, and has incorporated trading in the managed account platforms into the securities-not-found report.
46) By the end of 2005, Morgan Stanley remedied all of the previously identified Blue Sky compliance gaps in both the MSDW and PWM systems.
47) Morgan Stanley hired additional Compliance Department employees to staff its Blue Sky function.  In particular, the new personnel include a new Blue Sky manager who is dedicated exclusively to Blue Sky compliance.  A full time temporary employee was hired to assist the Blue Sky manager, and Morgan Stanley subsequently hired this individual as a permanent full-time employee.  Morgan Stanley also assigned a back-up person to cover the Blue Sky Manager’s responsibilities in the event of absences.
48) At great expense, Morgan Stanley conducted a review of millions of historical transactions and identified those which were executed in violation of the Blue Sky laws as a result of the system deficiencies, and offered rescission to customers under terms and conditions consistent with the state securities statutes corresponding to the state of residence of each affected customer.

OFFER OF SETTLEMENT

WHEREAS, Morgan Stanley & Co. Incorporated has advised the affected state securities regulators, including the Commissioner, of its agreement to informally resolve the investigations arising from the practices described herein;

WHEREAS, Morgan Stanley & Co. Incorporated, without admitting or denying any of the allegations or findings herein contained, expressly consents to the Commissioner’s jurisdiction under the Act and to the terms of this Consent Order;

WHEREAS, in furtherance of its desire to informally resolve the matters described herein, Morgan Stanley & Co. Incorporated has furnished proof to the State Task Force and the Commissioner that it has offered rescission to those firm customers who purchased securities that were not registered under state securities laws or the subject of a perfected exemptive claim, such rescissionary amount approximating $4.4 million to Connecticut investors;

WHEREAS, Morgan Stanley & Co. Incorporated represents, through its execution of this Consent Order, that it has since adopted policies and procedures, and taken further implementational steps, designed to ensure compliance with state securities registration requirements and all other applicable state securities laws and regulations;

WHEREAS, Morgan Stanley & Co. Incorporated, through its execution of this Consent Order, represents that it has received legal advice from its attorneys with respect to the advisability of executing this Consent Order;

WHEREAS, Morgan Stanley & Co. Incorporated, through its execution of this Consent Order, represents and agrees that none of the violations alleged in this Consent Order shall occur in the future;

FINDINGS OF THE COMMISSIONER AS TO EVIDENTIARY SUFFICIENCY TO INITIATE ADMINISTRATIVE PROCEEDINGS

WHEREAS, the Commissioner finds that sufficient grounds would exist to initiate enforcement proceedings against Morgan Stanley & Co. Incorporated under Sections 36b-15 and 36b-27 of the Act, based on the following, all of which are more fully described above, after granting Morgan Stanley & Co. Incorporated an opportunity for a hearing:

1)
Morgan Stanley & Co. Incorporated’s failure to maintain adequate systems to reasonably ensure compliance with state securities registration requirements resulted in the sale of unregistered securities in violation of Section 36b-16 of the Act, which forms a basis for proceeding under Section 36b-15(a)(2)(B), Section 36b-15(a)(2)(K) and subsections (a) and (d) of Section 36b-27 of the Act; and
2)

From approximately 1995 to May 2005, Morgan Stanley & Co. Incorporated violated Section 36b-31-6f(b) of the Regulations by failing to establish, enforce and maintain a system for supervising the activities of its agents and Connecticut office operations reasonably designed to achieve compliance with state securities registration requirements, which violation forms a basis for proceeding under Section 36b-15(a)(2)(B) and subsections (a) and (d) of Section 36b-27 of the Act;

CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, Morgan Stanley & Co. Incorporated, through its execution of this Consent Order, voluntarily waives the following rights:

1) To be afforded written notice and an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27 of the Act and Sections 4 177(a) and 4-177(b) of the Connecticut General Statutes;
2) To present evidence and argument and to otherwise avail itself of Section 4 177c(a) of the Connecticut General Statutes;
3) To present its position in a hearing in which it is represented by counsel;
4)
To have a written record of the hearing made and a written decision issued by a hearing officer; and
5)
To seek judicial review of, or otherwise challenge or contest the matters described herein, including the validity of this Consent Order.

CONSENT TO ENTRY OF SANCTIONS

WHEREAS, Morgan Stanley & Co. Incorporated, through its execution of this Consent Order, acknowledges the possible consequences of an administrative hearing and voluntarily consents to the Commissioner issuing an order imposing on it the following sanctions:

1)
Morgan Stanley & Co. Incorporated shall cease and desist from engaging, directly or indirectly, in conduct constituting or which would constitute a violation of the Act or any regulation or order under the Act, including, without limitation, offering or selling securities in this state in contravention of Section 36b-16 of the Act;
2)
No later than the date this Consent Order is entered by the Commissioner, Morgan Stanley & Co. Incorporated shall remit to the State of Connecticut the following amounts totaling eighty five thousand eight hundred seventy nine dollars ($85,879) and representing the State of Connecticut’s proportionate share of the $8.5 million multi-state settlement achieved as a result of the State Task Force investigation:
a) Fifty thousand dollars ($50,000) shall be paid directly to the State of Connecticut Department of Social Services to promote financial literacy initiatives for the benefit of low-income and/or elderly persons in Connecticut, as determined by the Commissioner of Social Services;
b) Thirty-five thousand eight hundred seventy nine dollars ($35,879) shall be paid to the Department of Banking by certified bank check payable to “Treasurer, State of Connecticut.”  Of that amount, twenty five thousand dollars ($25,000) shall constitute an administrative fine and ten thousand eight hundred seventy nine dollars ($10,879) shall be applied to defray the agency’s investigative costs in connection with this matter;

CONSENT ORDER

NOW THEREFORE, the Commissioner enters the following:

1)
The Sanctions set forth above be and are hereby entered;
2) This Consent Order concludes the investigation by the Commissioner and any other action that the Commissioner could commence under the Act on behalf of the State of Connecticut as it relates to Morgan Stanley & Co. Incorporated or any of its affiliates, and their current or former officers, directors, and employees, arising from or relating to the subject of the investigation described herein; provided, however, that excluded from and not covered by this paragraph are any claims by the Commissioner arising from or relating to enforcement of this Consent Order;
3)
 
(a) This Consent Order is not intended by the Commissioner to subject any Covered Person, as defined in subparagraph (b) of this paragraph, to any disqualifications under the laws of the United States, any state, the District of Columbia or Puerto Rico, including, without limitation, any disqualification from relying upon applicable state or federal registration exemptions or safe harbor provisions;
(b) For purposes of this Consent Order, “Covered Person” shall mean Morgan Stanley & Co. Incorporated or any of its affiliates and their current or former officers, directors, employees, or other persons that would otherwise be disqualified as a result of this Consent Order and/or an order entered by any other state in related proceedings against Morgan Stanley & Co. Incorporated arising from the conduct described herein.
4)
Neither this Consent Order nor an order entered by any other state in related proceedings against Morgan Stanley & Co. Incorporated arising from the conduct described herein shall disqualify any Covered Person from any business that such Covered Person is otherwise qualified, licensed or permitted to perform under the applicable laws of Connecticut, and any disqualifications from relying upon this state’s registration exemptions or safe harbor provisions that arise from such orders are hereby waived;
5)
With respect to any person or entity not a party to this Consent Order, this Consent Order does not limit or create any private rights or remedies against Morgan Stanley & Co. Incorporated; create liability on the part of Morgan Stanley & Co. Incorporated; or limit or create defenses of Morgan Stanley & Co. Incorporated to any claims;
6) This Consent Order and any dispute related thereto shall be construed and enforced in accordance with, and governed by, the laws of the State of Connecticut, without regard to any choice of law principles;
7) Morgan Stanley & Co. Incorporated agrees not to take any action or to make or permit to be made on its behalf any public statement denying, directly or indirectly, any finding in this Consent Order or creating the impression that this Consent Order is without factual basis.  Nothing in this paragraph shall affect Morgan Stanley & Co. Incorporated’s (i) testimonial obligations; or (ii) right to take legal or factual positions in defense of litigation or in defense of a claim or other legal proceeding to which the Commissioner is not a party;
8) This Consent Order shall be binding upon Morgan Stanley & Co. Incorporated and its successors and assigns; and
9) This Consent Order shall become final when issued.

 

So ordered at Hartford, Connecticut
this 9th day of March 2009.               _________/s/_________
                                                    Howard F. Pitkin
                                                    Banking Commissioner


CONSENT TO ENTRY OF ORDER

I, S. Anthony Taggart, state on behalf of Morgan Stanley & Co. Incorporated, on its behalf and as successor to Morgan Stanley DW Inc., that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of Morgan Stanley & Co. Incorporated; that no promise of any kind or nature whatsoever was made to induce Morgan Stanley & Co. Incorporated to enter into this Consent Order and that it has entered into this Consent Order voluntarily; that Morgan Stanley & Co. Incorporated agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that Morgan Stanley & Co. Incorporated consents to the entry of this Consent Order, expressly waiving any right to a hearing on the matters described herein.

      Morgan Stanley & Co. Incorporated


By   ___________/s/_________________ 
      S. Anthony Taggart 
      Executive Director


On this the 6th day of March 2009, before me, the undersigned officer, personally appeared S. Anthony Taggart, who acknowledged himself to be the Executive Director of Morgan Stanley & Co. Incorporated, a corporation, and that he, as such Executive Director, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as Executive Director.

In witness whereof I hereunto set my hand.


____________/s/___________________
Notary Public
My Commission Expires:  August 8, 2010  


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