A Morgan Stanley subadviser has agreed to pay $1.6 million to settle SEC charges that it collected more than $1.8 million in fees for services it did not provide. The Malaysian subadviser, AMMB Consultant Sendirian Berhard (AMC), served as a subadviser to the Malaysia Fund, Inc., a closed-end fund that invests in Malaysian companies. This settlement follows a related enforcement action against Morgan Stanley brought in November 2011 and is part of an inquiry into the investment advisory contract renewal process by the SEC Enforcement Division's Asset Management Unit.
According to the SEC, AMC submitted a report to the Malaysia Fund's board of directors each year that falsely claimed that AMC was providing specific advice, research, and assistance to MSIM for the benefit of the fund. In reality, the SEC's complaint said AMC's services were limited to providing two monthly reports based on publicly available information that MSIM did not request or use. Moreover, the SEC alleged that AMC failed to adopt and implement adequate policies, procedures, and controls over its advisory business, contrary to certifications provided to the fund's directors in 2006 and 2007. AMC's advisory agreement with the fund was terminated in early 2008 after the SEC's examination staff inquired about the services AMC was purportedly providing to the fund.