Affirmative Relief

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Morgan Stanley and New York: Affirmative Relief Agreement

57. The Attorney General finds that the following sanctions appropriate and in the public interest.

AGREEMENT

IT NOW APPEARING THAT Morgan Stanley desires to settle and resolve the Investigation prior to a hearing or trial and without an adjudication after a hearing or trial of law and fact, and without admitting or denying the Attorney General's Findings, the Attorney General and Morgan Stanley hereby enter into this Assurance of Discontinuance, pursuant to Executive Law 63 (15), ad agree as follows:

Affirmative Relief

• A. Morgan Stanley admits the jurisdiction of the New York State Attorney General, and will cease and desist from any acts in violation of the Martin Act and will comply with Martin Act.
• B. Evidence of a violation of this Assurance of Discontinuance by Morgan Stanley shall constitute prima facie proof of violation of the Martin Act in any civil action or proceeding hereafter commenced by the Attorney General.
• C. Morgan Stanley shall pay a total amount of $125,000,000 (which includes $25,000,000 as a penalty) as follows:
  • (1) a $1,462,158 penalty shall be paid to the New York State Department of law (the "New York Payment") by wire transfer within 10 days of the parties' execution of this Assurance of Discontinuance. By making this payment, Morgan Stanley relinquishes all legal and equitable right, title, and interest in such funds, and no part of the funds will be returned to Morgan Stanley. If such payment is not made by Morgan Stanley or if Morgan Stanley defaults in any of its obligations under this Assurance of Discontinuance, the Attorney general may terminate this Assurance of Discontinuance, at his sole discretion, upon 10 days' written notice to Morgan Stanley and Morgan Stanley agrees that any stature of limitations applicable to the subject of the Investigation and any claim arising from or relating thereto are tolled from and after date of this Assurance of Discontinuance.
  • (2) $23,537,842 that Morgan Stanley has offered to pay in connection with the resolution of related proceedings by other state securities regulators (which, for, that purposes, shall include the District of Columbia and Puerto Rico) (Morgan Stanley's offer to the state securities regulators hereinafter shall be called the "State Settlement Offer").
  • (3) $25,000,000 shall be paid by Morgan Stanley pursuant to the final Judgement in the related action brought by the Securities and Exchange Commission ("SEC") against Morgan Stanley ("Final Judgement") and in connection with Morgan Stanley's resolution of related proceedings instituted by the NASD, Inc. ("NASD") and the New York Stock Exchange, Inc. ("NYSE").
  • (4) $75,000,000 to be used for the procurement of Independent Research, as described in paragraph D below and Addendum A hereto and paid pursuant to the Final Judgement. This amount is not contingent or dependent in any way or part upon acceptance by any state securities regulator(s) of the State Settlement Offer. Any money that is not spent after the five-year period set forth in Section III.1 of Addendum A hereto will not be retained by Morgan Stanley and will be paid one-half to NASD and one-half to NYSE for use in their regulation and enforcement programs.
  • (5) Morgan Stanley's obligation to make the new York payment is not contingent or dependent in any way or part on Morgan Stanley's payments: (a) to state securities regulators pursuant to the State Settlement Offer; or (b) to the SEC, NASD, or NYSE as described in ParagraphC.3. The total amount to be paid by Morgan Stanley to state securities regulators pursuant to State Settlement Offer (and the total amount of the penalty) may be reduced due to the decision of any state securities regulator(s) not to accept the State Settlement Offer. In the event a state securities regulator determines not to accept Morgan Stanley's State Settlement Offer, or the Final Judgement is not approved, signed and so ordered by the Court or final resolutions for the related proceedings instituted by the NASD or NYSE are not duly signed and approved by such organizations, the total amount of the New York payment shall not be affected, and shall remain at $1,462,158.
  
  Morgan Stanley agrees that it shall not seek or accept, directly or indirectly, reimbursement or indemnification, including but not limited to payment made pursuant to any insurance policy, with regard to any penalty amounts that Morgan Stanley shall pay pursuant to this Assurance of Discontinuance or the Final Judgement, regardless of whether such penalty amounts or any part thereof are added to the Distribution Fund Account provided for in the Final Judgement or otherwise used for the benefit of investors. Morgan Stanley further agrees that it shall not claim, assert, or apply for a tax deduction or tax credit with regard to any federal, state, or local tax for any penalty amounts that Morgan Stanley shall pay pursuant to this Assurance of Discontinuance or Section II of the Final Judgement, regardless of whether such penalty amounts or any part thereof are added to the foregoing Distribution Fund Account or otherwise used for the benefit of investors. Morgan Stanley understands and acknowledges that these provisions are not intended to imply that the Attorney General would agree that any other amounts Morgan Stanley shall pay pursuant to this Assurance of Discontinuance or the Final Judgement may be reimbursed or indemnified (whether pursuant to an insurance policy or otherwise) under applicable law or may be the basis for any tax deduction or tax credit with regard to any federal, state or local tax.
  No portion of the payments for Independent Research shall be considered disgorgement or restitution, and/or used for compensatory purposes.
• D. Morgan Stanley agrees to the terms and shall comply with the undertakings, of Addendum A, hereto, incorporated by reference herein, which inter alia, provides for: 91) separation of research and investment banking; (2) procurement of independent, third-party research by the Independent Consultant (as defined in Addendum A) and provision of such independent research to Morgan Stanley's customers at no cost to such customers; (3) information and disclosures to enhance investors' abilities to evaluate the quality and accuracy to research reports; and (4) certification to the Attorney general respecting Morgan Stanley's compliance with the requirements and prohibitions set forth in Addendum A hereto.
  Morgan Stanley shall also escrow $1,250,000 within thirty 930) days after entry of, and pursuant to, the Final Judgement to cover the fees and costs of the Independent Consultant. This obligation is not contingent or dependent in any way upon acceptance by any state securities regulator(s) of the State Settlement Offer. In the event that such escrowed amount exceeds the fees and costs of the Independent Consultant, the excess, pursuant to the Final Judgement, will be returned to Morgan Stanley at the conclusion of the five-year period set forth in Section III.1 of Addendum A hereto.
• E. Morgan Stanley agrees to the terms of Addendum B, attached hereto, incorporated by reference herein, which provides, inter alia, that Morgan Stanley will not allocate securities of "hot" initial public securities to an account of an executive officer or director of a public company.