NASD halves $1 million brokerage fine

Morgan Stanley allegedly manipulated stocks' price

January 25, 2000|By BLOOMBERG NEWS

WASHINGTON -- The National Association of Securities Dealers reduced by half yesterday a $1 million fine that it had imposed on Morgan Stanley Dean Witter & Co. for allegedly manipulating the price of some stocks in the Nasdaq 100 index.

NASD Regulation's top judicial panel, while lowering the fine to $495,000, upheld the thrust of a lower committee's finding against the nation's second-largest brokerage.

The panel found that Morgan Stanley fraudulently raised quotes on nine stocks in 1995 when the options on the Nasdaq 100 index were set to expire, allowing the firm to avoid losses.

New York-based Morgan Stanley, which has 12,600 brokers, said it might appeal the decision.

"We are disappointed with the NASD's findings," Morgan Stanley spokeswoman Jeanmarie McFadden said. "We strongly disagree that the trading activity, which occurred back in 1995, was inappropriate in any way."

She said Morgan Stanley is "gratified" that the fine was reduced. The firm has 30 days to appeal the decision to the Securities and Exchange Commission. The conduct at issue involved Morgan Stanley & Co. before it merged with Dean Witter Discover & Co. in 1997.

The NASD also reduced fines against current and former Morgan Stanley traders to a total of $15,000, from a total of $250,000, and eliminated suspensions that had been imposed against each. Six traders were fined yesterday, instead of the seven that had been penalized in April 1998.

The NASD's allegations involve an arrangement between Morgan Stanley's program-trading and over-the-counter desks aimed at letting the program-trading desk avoid losses when Nasdaq 100 options expired. The OTC desk would sell to the program-trading desk the exact amount of each security necessary to close out stock positions established to hedge investments in the options. The sale between the desks would occur at the day's opening price.

The NASD found that the OTC desk fraudulently raised the nine stocks' quotes before the market opened in March 17 and Oct. 20, 1995, two days when Nasdaq 100 options were to expire. This artificially pushed up the opening prices without any purchase of stock. The firm decreased its bid for the nine stocks within minutes of the market opening, and in some cases did not buy any stock.

"Serious sanctions must be imposed to ensure that other employers take care to prevent similar circumstances from arising," the NASD's national adjudicatory council said in its 41-page decision.

The stocks that were allegedly manipulated were Bruno's Inc., Molex Inc., Tele-Communications Inc., US Healthcare Inc., Dell Computer Corp., Linear Technology Corp., Sybase Inc., Vanguard Cellular Systems Inc. and Willamette Industries Inc. The companies were not accused of any wrongdoing.

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