Investment Advisory Firm Agrees to Settle Customer Billing and Compliance Issues

Morgan Stanley Smith Barney LLC, an investment advisory firm, agreed to pay a $13 million penalty to settle SEC charges alleging the firm (i) overbilled investment advisory clients, and (ii) committed custody examination, and books and records violations under the Investment Advisers Act. The SEC charges stem from a 2009 merger of advisory entities that had operated separately and maintained divergent schedules on different billing systems. The SEC found that the overcharging was due chiefly to "coding and other errors" in the firm's "billing systems and processes." The SEC Order determined that the firm (i) failed to conduct a required annual surprise custody examination in accordance with the custody rule, (ii) had inadequate procedures in place for maintaining records of client contracts, and (iii) "failed to adopt and implement reasonably designed compliance policies and procedures to prevent these violations."