According to FINRA, Morgan Stanley Smith Barney LLC was censured, fined $200,000, and ordered to pay $497,897 in restitution to customers for failing to reasonably supervise registered representatives who recommended potentially high-risk securities in violation of the firm's Plan of Solicitation policy.

The firm received alerts that some representatives had made hundreds of recommendations violating the Plan of Solicitation policy, which required supervisor review and approval before representatives recommended securities. Each representative recommended customers purchase securities in quantities subject to pre-approval requirements but did not complete a Plan of Solicitation. Some recommended securities were high risk and inconsistent with customers' moderate or conservative risk tolerances.

The firm did not take appropriate action in response to alerts of policy violations. Specifically, the firm did not evaluate whether recommendations were consistent with customers' investment profiles. Customers incurred realized losses from many of the recommended trades.

The Plan of Solicitation requirement exists to ensure that when representatives concentrate recommendations in particular securities, those recommendations receive heightened supervisory scrutiny to protect investors from unsuitable or inappropriate investments.

Following these violations, the firm improved its enforcement of the Plan of Solicitation policy, including directing review of alerts to a central review unit for more consistent oversight.

This case demonstrates that supervisory systems must include not only policies and alerts but also meaningful follow-up when violations are detected. Firms cannot simply ignore alerts of policy violations without evaluating whether customers were harmed and taking corrective action to prevent future violations.