SEC Charges Morgan Stanley, Citigroup With Misleading Forex Investors

By Francine McKenna Markets MarketWatch Pulse

The Securities and Exchange Commission said on Tuesday that Morgan Stanley Smith Barney and Citigroup Global Markets will pay more than $2.96 million each to settle charges that they made false and misleading statements to investors about a foreign exchange trading program product. Registered representatives at both firms sold a foreign exchange trading program known as "CitiFX Alpha" to Morgan Stanley customers from August 2010 to July 2011, according to the SEC. Citigroup held a 49% ownership interest in Morgan Stanley Smith Barney at the time. The SEC complaint says the sales personnel used the program's past performance and risk metrics in investor presentations. They also failed to adequately disclose that investors could be required to borrow more than advertised to participate and that markups would be charged on each trade. Investors suffered significant losses as a result of the undisclosed leverage and hidden markups, says the SEC. Morgan Stanley and Citigroup did not admit or deny the findings but each agreed to pay a penalty of $2.25 million, to give back profits of $624 thousand and pay interest of $89 thousand.

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