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Moonlighting: Broker Style

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Du Jun, a former managing director of Morgan Stanley in Hong Kong, can sympathize with the plight of investors who suffered staggering losses. He was only making $2 million a year. Obviously, he needed to supplement his income.

No problem.

Mr. Jun had access to confidential information about a listed company, Citic Resources. It was being advised by Morgan Stanley about an oil field purchase in Kazakhstan. Mr. Jun bought $11 million worth of Citic's shares and promptly sold them for a cool $4.3 million profit.

Problem solved!

How did this activity get past Morgan Stanley's compliance department? Quite easily. Not only did Morgan Stanley approve these trades, some of them were handled by the firm.

The prosecuting attorney called Morgan Stanley's compliance "haphazard," "inefficient" and "hopelessly inadequate." The defense claimed that this insider trading was "... in accordance with [Morgan Stanley's] procedures."

On September 18, 2009, Mr. Jun was convicted and sentenced to 7 years in prison.

Morgan Stanley issued a statement claiming that this misconduct "was a violation of Morgan Stanley's values and policies."

Apparently, the compliance department did not get the "values and policies" memo.

Dan Solin is the author of The Smartest Retirement Book You'll Ever Read.

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