Meanwhile, Also at Morgan Stanley...

Almost lost in the shuffle amid Morgan Stanley's disclosure of billions in losses stemming from the subprime mortgage mess were two other federal securities actions that rubbed some more gloss off the company.

The Securities and Exchange Commission yesterday also announced it had filed a civil fraud action against two former Morgan Stanley financial advisers, Darryl A. Goldstein and Christopher O'Donnell, for allegedly engaging in a fraudulent market timing scheme that harmed at least 50 mutual fund companies and their shareholders.

At the same time, the commission also disclosed a $17 million settlement with Morgan Stanley for failure to "reasonably" supervise four financial advisers who engaged in the same deceptive scheme.

At the same time, another former financial adviser, Marc H. Plotkin, paid $90,000 to settle charges against him. Neither Morgan Stanley nor Plotkin admitted or denied the commission's accusations.

The S.E.C., filing in federal district court in New York, charged Goldstein and O'Donnell with mutual fund share trades that contravened fund restrictions on market timing.

The scheme was allegedly carried out between January 2002 and August 2003, and generated about $1 million in net commission or asset-based fees for the pair, securities lawyers claimed.

O'Donnell, 45, was a financial adviser at Morgan Stanley's office in Rye, New York, an affluent New York City suburb where he advised the hedge fund, Millennium Partners L.P. A Rye resident, he now works for Bear Stearns & Co., Inc. in New York.

His lawyer, Nina Beattie, of Grune & Richard of Manhattan, said: "We believe there is no merit to the S.E.C.'s complaint, and we intend to fight it, and intend to prevail in court."

Goldstein, 36, worked in Manhattan, also advising Millennium Partners as well as Haidar Capital Management LLC. A New York resident, he had been working at Gilford Securities Inc. in Manhattan, but the company said he is no longer employed there.

According to details in the S.E.C. complaint, mutual fund companies sent Morgan Stanley at least 225 letters to bar or restrict trading by the two fund managers who allegedly engaged in an elaborate scheme to dodge market-timing restrictions and conceal their hedge fund customers' ongoing market-timing trading.

They did so by opening and trading in multiple brokerage accounts - as many as 122 - as well as trading under different adviser identification numbers and through as many as 64 variable annuity contracts. They allegedly placed more than 4,000 market-timing trades involving $4.8 billion in trading volume.

In the settlement with Morgan Stanley—an administrative procedure—the country's second-largest securities firm paid a $11.8 million penalty plus $5.1 million in interest to close the books on the S.E.C.'s content that four financial advisers engaged in the fraudulent marketing scheme. The four were not identified by name.

by Elizabeth Olson