The US Securities and Exchange Commission (SEC) said on Tuesday it has imposed fines to financial service corporations Morgan Stanley Smith Barney and Citigroup Global Markets in the amount of $2.96 million each to settle charges concerning their partaking in a forex trading program that misled investors.
From August 2010 to July 2011, representatives of the two entities jointly provided forex trading program CitiFX Alpha to clients of Morgan Stanley. At the time, Citigroup held a 49% stake in Morgan Stanley.
“Citigroup and Morgan Stanley sold securities in a complex trading program without giving certain investors important information about the risks and costs of the program,” said Eric I. Bustillo, director of the SEC’s Miami regional office. “Investors simply cannot be sold investments based on disclosures that are inaccurate or incomplete,” he noted.
The way the program was presented, both verbally and in written form, was false and misleading. The entities’ statements were based on the program’s past performance and risk metrics, but they omitted to include important information about leverage usage that inevitably led to significant losses to clients. Investors were not adequately informed they could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade.
“The SEC’s orders find that Morgan Stanley and Citigroup violated Section 17(a)(2) of the Securities Act of 1933, which prohibits obtaining money or property by means of any material misstatement or omission in the offer or sale of securities,” the SEC statement read. “Without admitting or denying the SEC’s findings, Morgan Stanley and Citigroup each agreed to pay disgorgement of $624,458.27 plus interest of $89,277.34 and a penalty of $2.25 million for a total of more than $5.9 million combined.”
The SEC is in charge of the securities markets regulation in the US. It said that it continues to receive numerous investors complaints concerning binary options service providers. In most instances, traders have trouble withdrawing their investments or are asked to put in more money to win back what they had lost.