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Why Wall Street Just Won’t Behave

There are many reasons people don’t rob banks. It’s wrong to take what isn’t ours, and the punishment when caught is severe.

But what if the only consequence of getting caught is that you have to give back half of the money you stole?

That analogy might be appropriate to a case involving Morgan Stanley. The firm was recently fined $3 million and ordered to pay $4.2 million in restitution to 90 Rochester, NY-area retirees, resolving charges that its supervisory system failed to prevent two former brokers from persuading Eastman Kodak and Xerox employees to take early retirement. According to the Financial Industry Regulatory Authority (FINRA), the brokers made unrealistic promises of consistently high investment returns and espoused unsuitable investment strategies.

FINRA claimed that the brokers’ misconduct caused at least 184 customers to suffer financial hardships, including market losses, a reduction in principal and the inability to sustain expected withdrawal rates. Some of the customers, says FINRA, were forced to return to work at reduced wages. Result: Without admitting or denying the charges, Morgan Stanley consented to pay $7.2 million in fines and restitution.

Did the punishment fit the crime? Consider this: FINRA says the brokers generated gross commissions of $15.4 million.

Until the regulators make Wall Street feel as much pain as its victims, bad behavior simply won’t stop.

Ric Edelman is Chairman and CEO of Edelman Financial Services LLC, which manages billions of dollars for individuals and families nationwide. Ric is a frequent On the Money contributor and the author of seven books on personal finance, including his new #1 Bestseller, RESCUE YOUR MONEY.


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