2003-04-28 sec-litreleases pdf 14 KB 3,331 chars

SEC v. : 03 Civ. 2948 (WHP)

Exhibit of Federal Court Approves Settlement of SEC Enforcement Actions Involving Conflicts of Interest Between Research and Investment Banking
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summary

Morgan Stanley & Co. Incorporated settled SEC securities fraud allegations involving misleading research on internet stocks by paying $100 million, with $75 million distributed to investors who bought Ventro Corp., drugstore.com, Ask Jeeves, or Inktomi Corp. between April 2000 and March 2001, without admitting guilt.

paragraph

Morgan Stanley & Co. Incorporated agreed to a $100 million federal payment to settle SEC allegations of securities fraud related to biased research analyst practices, including issuing misleading buy recommendations on internet stocks while privately expressing negative views. Of this amount, $75 million was allocated to a Distribution Fund to compensate eligible investors who purchased Ventro Corp., drugstore.com, Ask Jeeves, or Inktomi Corp. during specified periods between April 2000 and March 2001. The court emphasized that the identified securities and purchase windows were for administrative purposes only and did not constitute judicial findings of wrongdoing, and Morgan Stanley did not admit liability as part of the settlement.

narrative

Morgan Stanley & Co. Incorporated settled SEC securities fraud allegations involving improper research analyst practices, including issuing misleading buy recommendations on internet stocks while privately expressing negative views, by agreeing to a $100 million federal payment. Of this sum, $75 million was designated for a Distribution Fund to compensate investors who purchased Ventro Corp. (April 5–July 4, 2000), drugstore.com (April 25–July 24, 2000), Ask Jeeves (April 20–July 19, 2000), or Inktomi Corp. (December 7, 2000–March 7, 2001). The court’s order explicitly stated that the identification of these securities and purchase periods was solely for the administrative purpose of distributing funds and did not constitute a judicial or SEC finding of wrongdoing. The Distribution Fund Plan was designed to ensure equitable and cost-effective repayment to eligible investors, administered by a court-appointed administrator. Morgan Stanley did not admit guilt as part of the settlement, and the Final Judgment, signed on October 31, 2003, resolved the civil action without trial. The remaining $25 million of the payment went to the U.S. Treasury as a civil penalty. This case was part of a broader industry-wide crackdown on conflicts of interest in investment research during the dot-com bubble era.

Enriched metadata

Scheme
investment-adviser-fraud (80%)
Court
Southern District of New York
Classified investment-adviser-fraud(confidence 80%). EDGAR detection: forms ADV/ADV-E/ADV-W/Form D· recall 33% / precision 13%. detection rule →
Parties
Securities and Exchange CommissionMorgan Stanley and Co. Incorporated
Keywords
distribution funddistributionequity securitiessecurities questionquestion relevantfundfund planfinalsecuritiesequityrelevant periodperiod purchaseapril julyquestionrelevant

Extracted insights

Entities 2
  • company a final judgment as to defendant morgan stanley and co. incorporated
  • company the creation of a distribution fund
Triples 7
  • The Court Signed A Final Judgment as to Defendant Morgan Stanley and Co. Incorporated
  • Section II of the Final Judgment Calls for The creation of a Distribution Fund
  • Section V.A of the Final Judgment Requires The Distribution Fund Administrator to formulate and administer a Distribution Fund Plan
  • Section V.C.1 of the Final Judgment Defines Eligible Distribution Fund Recipient as a person who purchased equity securities in question through Defendant during the relevant period of purchase
  • Section V.C.1 States Identification of the equity securities in question and the relevant period of purchase for each such equity security will be set forth in a further order of the Court
  • The Court Ordered The equity securities in question and the relevant periods of purchase for each such equity security
  • The identification of equity securities in question and relevant periods of purchase Is solely for The purpose of facilitating the efficient administration of the Distribution Fund Plan
PDF
SEC v. : 03 Civ. 2948 (WHP) · Source
Text layers
Extracted body text (3,331c) 

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
________________________________________________ 
        : 
SECURITIES AND EXCHANGE COMMISSION, : 
        : 
                                                Plaintiff,                                    :            Civil            Action            No.            
        : 
                        -against-                                                            :            03            Civ.            2948            (WHP)            
        : 
MORGAN            STANLEY            AND            CO.                                                            :            
INCORPORATED,                                                                        :            
        : 
    Defendant.   : 
________________________________________________: 
 
ORDER REGARDING DISTRIBUTION FUND PLAN 
 
 On October 31, 2003, the Court signed a Final Judgment as to Defendant Morgan Stanley 
and Co. Incorporated (“Final Judgment”).  Section II of the Final Judgment calls for the creation 
of a Distribution Fund, which consists of Defendant’s Federal Payment plus any income and 
interest earned thereon.
1
  Under Section V.A of the Final Judgment, “[t]he Distribution Fund 
Administrator shall formulate and administer a Distribution Fund Plan ... intended to provide for 
the equitable, cost-effective distribution of funds to Eligible Distribution Fund Recipients.”  
Under Section V.C.1 of the Final Judgment, to be an Eligible Distribution Fund Recipient, a 
person must have purchased “equity securities in question” through Defendant during the 
“relevant period of purchase.”  Also under Section V.C.1, “[i]dentification of the ‘equity 
securities in question’ and the ‘relevant period of purchase’ for each such equity security will be 
set forth (solely for the purpose of administering the Distribution Fund Plan) in a further order of 
the Court.” 
                                                
 
1
 All defined terms in the Final Judgment apply to this Order. 

 Accordingly, IT IS HEREBY ORDERED that the “equity securities in question” and the 
“relevant period of purchase” for each such equity security, as those terms are used in Section 
V.C.1 of the Final Judgment, are as follows: 
 
Equity Securities in Question   Relevant Periods of Purchase
 Ventro Corp. (formerly Chemdex Corp.) April 5, 2000 – July 4, 2000 
 drugstore.com, Inc.    April 25, 2000 – July 24, 2000 
 Ask Jeeves Inc.    April 20, 2000 – July 19, 2000 
 Inktomi Corp.     Dec. 7, 2000 – March 7, 2001 
  
The identification of “equity securities in question” and “relevant periods of purchase” made 
herein is solely for the purpose of facilitating the efficient administration of the Distribution 
Fund Plan, is not a judicial or Commission finding, and is not intended to have precedential 
effect in other actions. 
            SO            ORDERED.            
 
Dated: New York, New York 
            October            31,            2003            
 
 
                                                                        ________________________________            
                                                                        WILLIAM            H.            PAULEY            III            
      UNITED STATES DISTRICT JUDGE
 
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OCR text (2,652c · tika · 95% conf) 
UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
________________________________________________ 
        : 
SECURITIES AND EXCHANGE COMMISSION, : 
        : 
    Plaintiff,   : Civil Action No. 
        : 
  -against-     : 03 Civ. 2948 (WHP) 
        : 
MORGAN STANLEY AND CO.     : 
INCORPORATED,      : 
        : 
    Defendant.   : 
________________________________________________: 
 

ORDER REGARDING DISTRIBUTION FUND PLAN 
 

 On October 31, 2003, the Court signed a Final Judgment as to Defendant Morgan Stanley 

and Co. Incorporated (“Final Judgment”).  Section II of the Final Judgment calls for the creation 

of a Distribution Fund, which consists of Defendant’s Federal Payment plus any income and 

interest earned thereon.1  Under Section V.A of the Final Judgment, “[t]he Distribution Fund 

Administrator shall formulate and administer a Distribution Fund Plan … intended to provide for 

the equitable, cost-effective distribution of funds to Eligible Distribution Fund Recipients.”  

Under Section V.C.1 of the Final Judgment, to be an Eligible Distribution Fund Recipient, a 

person must have purchased “equity securities in question” through Defendant during the 

“relevant period of purchase.”  Also under Section V.C.1, “[i]dentification of the ‘equity 

securities in question’ and the ‘relevant period of purchase’ for each such equity security will be 

set forth (solely for the purpose of administering the Distribution Fund Plan) in a further order of 

the Court.” 

                                                 
1 All defined terms in the Final Judgment apply to this Order. 



 Accordingly, IT IS HEREBY ORDERED that the “equity securities in question” and the 

“relevant period of purchase” for each such equity security, as those terms are used in Section 

V.C.1 of the Final Judgment, are as follows: 

 Equity Securities in Question   Relevant Periods of Purchase
 Ventro Corp. (formerly Chemdex Corp.) April 5, 2000 – July 4, 2000 
 drugstore.com, Inc.    April 25, 2000 – July 24, 2000 
 Ask Jeeves Inc.    April 20, 2000 – July 19, 2000 
 Inktomi Corp.     Dec. 7, 2000 – March 7, 2001 
  
The identification of “equity securities in question” and “relevant periods of purchase” made 

herein is solely for the purpose of facilitating the efficient administration of the Distribution 

Fund Plan, is not a judicial or Commission finding, and is not intended to have precedential 

effect in other actions. 

 SO ORDERED. 

 
Dated: New York, New York 
 October 31, 2003 
 
 
      ________________________________ 
      WILLIAM H. PAULEY III 
      UNITED STATES DISTRICT JUDGE 

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