Non-Disclosure

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Morgan Stanley and New York: Non-Disclosure

MORGAN STANLEY DID NOT DISCLOSE THAT IT PAID $2.7 MILLION OF UNDERWRITING FEES AT ISSUERS' DIRECTION TO OTHER INVESTMENT BANKS TO PROVIDE RESEARCH COVERAGE

48. In at least twelve stock offerings in which it was selected as lead underwriter from 1999 through 2001, Morgan Stanley paid $2.7 million of the underwriting fees to approximately twenty-five investment banks. Internal Morgan Stanley documents described these payments as "research guarantees" or "guarantees economics for research." (Exhibit 37.) Other internal Morgan Stanley documents noted instances in which the bank receiving the payment "will write." (Exhibit 38.) Morgan Stanley made these payments from the offering proceeds at the direction of the issuers.

49. These 'research guarantee" payments included more than $670,000 paid to three investment banks in connection with an offering by Veritas Software Corp in December 1999; more than $816,000 paid to seven banks in connection with an Agile Software Corp. offering in December 1999; and more than $440,000 paid to five banks in connection with an offering by Atmel Crop. in February 2000. The individual disbursements ranged from two payments of just over $6,000 each to three payments of more than $225,000 each. (Exhibit 37.)

50. The issuers' registration statements and other offering documents identified the other banks as part of the underwriting syndicates and in receiving payments, but did not specifically disclose the payments as being for research. Morgan Stanley did not take steps to ensure that these banks disclosed these payments in their research reports. Morgan Stanley also did not cause the payments to be disclosed in offering documents or elsewhere as having been for research.