Morgan Stanley will pay $1 million to Massachusetts to settle charges brought by Secretary of State William Galvin that the banking giant had rewarded employees in Massachusetts and Rhode Island through a contest that encouraged wealthy clients to take out loans secured by their investments.
Galvin, who filed the charges in October, said the practice was in violation of state securities rules as well as Morgan Stanley’s own internal policies.
Furthermore, he said, even after Morgan Stanley higher-ups became aware of the contest and determined it was against company rules, the program continued for several months.
The program was run between 2014 and 2015, and included 30 financial advisors at five Morgan Stanley branches, located in Springfield, Waltham, Wellesley, Worcester, and Providence. Employees who convinced investors to open the new lending accounts in 2014 and 2015 were rewarded with increased “business development allowances,” which can pay for travel, dining or entertainment expenses related to work.
In October, Morgan Stanley said the charges from Galvin were without merit, noting that clients gave their consent before opening the accounts. The company said the clients were not charged merely for opening the accounts, and only paid fees if they actually took out the loans.
“Morgan Stanley is pleased to resolve this matter with the Massachusetts Securities Division,” the company said in a statement Wednesday, adding that the settlement order “contains no finding of fraudulent activity or that any client took a loan that was unsuitable or unauthorized.”
As part of the settlement, which was agreed to last week, Morgan Stanley must also submit a written report to Galvin’s office reviewing its sales contest policies and detailing any changes it will make as a result of the review.
At the time Galvin filed the charges, Wells Fargo was in the spotlight for deceptive practices. Wells Fargo was fined $185 million last fall after thousands of employees created as many as 2 million unauthorized customer accounts — a practice that has largely been attributed to sales incentive packages at the company.
Wells Fargo’s board recently said it would take back $75 million in compensation two former executives who were criticized for the scandal, including former chief executive John Stumpf.
Adam Vaccaro can be reached at adam.vaccaro@globe.com. Follow him on Twitter at @adamtvaccaro.