Spitzer widens Morgan Stanley inquiry

NEW YORK State Attorney General Eliot Spitzer and Massachusetts Secretary of State William Galvin will today announce a broader inquiry into the sale of mutual funds by Morgan Stanley, Spitzer has said.

The news follows confirmation by Morgan Stanley that the Securities and Exchange Commission has been investigating the bank's mutual fund sales practices since 29 April.

Spitzer and Galvin, along with US Congressman Barney Frank, will reportedly use the announcement in the Massachusetts State House to detail a 'significant enforcement action' against Morgan Stanley.

Mutual fund sales have been a focus of regulators, concerned by three years of losses. Last week, Prudential Securities agreed to pay $382,000 (£234,000) to settle allegations that it inadequately policed sales of mutual fund shares.

It is also alleged that one salesman charged investors improperly high commissions. SEC chairman William Donaldson has voiced concerns to Congress that not enough is disclosed about 'special incentives' for broker-dealers to sell certain fund shares.

He said he is examining whether brokers at securities firms are given inducements to sell their own company's funds, and whether buyers are aware of those incentives.

Although the SEC says its efforts have concentrated on factfinding, the National Association of Securities Dealers is investigating what it says are abuses in how brokerages sell Class B fund shares.