SEC Settles $2 Million Case Involving Ex-Morgan Stanley Analyst
Dec. 17, 1992
NEW YORK (AP) _ Federal regulators on Thursday settled charges against a former Morgan Stanley & Co. financial analyst who allegedly tipped off another securities firm employee to make illegal trades.
The Securities and Exchange Commission said the individuals agreed to pay fines to settle charges resulting from about $2.2 million in profits gained from the trades.
The SEC also said Jeffrey Brooks Securities agreed to pay a $405,000 penalty after the commission accused it of failing to realize its employee was trading illegally.
The regulators said it was the first time the commission has used an aspect of federal law that allows it to hold a company responsible when it is obvious it should have known an employee was trading illegally.
According to the SEC, the alleged illegal activity occurred as follows:
In May 1989, Lee A. Haddad, who worked in the mergers and acquisition department of Morgan Stanley, leaked information to a family friend about a pending deal between Paramount Communications Inc. and Time Inc.
Haddad's friend then tipped Andrew Cohen, a representative of Jeffrey Brooks Securities, about the offer for Time. As a result, Cohen, Haddad's friend and several others made more than $600,000 when Paramount's offer for Time was announced.
The SEC said Jeffrey Brooks could be blamed because the company, after several similar successful deals by Cohen, failed to seriously inquire about Cohen's sudden success.
Instead, the SEC said, the company ''decided to follow Cohen's and his customer's future trading pattern and to purchase the same securities for accounts that he controlled, including JBS' principal trading account.''
''It was at least reckless,'' said Jerry Isenberg, assistant director of the division of enforcement for the SEC. ''The firm and its principals made no inquiries as to how he was so lucky.''
''Instead, they piggybacked on his decisions,'' he said. ''Not only did they not ask questions and try to figure out what was going on, they followed the trading pattern to profit.''
Isenberg said the company made about $291,000 from the allegedly illegal deals, which ended in March 1990.
Jeanne Andrews, a Morgan Stanley spokeswoman, said Haddad was a junior- level analyst in a training program for college graduates. She said he has not worked for the firm since July 1990 and has agreed never again to work on Wall Street.
''We have not in any way been associated with the illegal activities and will not be,'' Andrews said.
In a release, Morgan Stanley said: ''Client confidentiality has always been critically important to Morgan Stanley, and we deeply regret this deliberate violation of our clearly stated rules and procedures.''
Cohen left Jeffrey Brooks Securities shortly after the SEC began investigating the firm, said Isenbreg. He also agreed to never again work for any broker or investment company, the SEC said.
A man who answered the phone at Jeffrey Brooks in East Hills, N.Y., and would not identify himself said there was no one in the office who could speak to a reporter.