The

Glengarry Glen Ross

screenplay could've been the trainingmanual used at Morgan Stanley's Back Bay branch in Massachusetts.

Aggressive sales tactics in the Morgan office stemmed from a promise ofa cash bonus for sales teams that sold the most "proprietary product," orcompany-owned mutual funds. Almost $100,000 in prize money was available toMorgan branches in the Northeast region. That's even better than the Cadillac Eldorado offered as an incentive for salespeople in the real estate firm

in the movie.

Additional incentives at Morgan included "various types of hiddencompensation in the form of travel and expense reimbursements, business-development dollars

and asset-retention dollars," according to

an administrative complaint filed last Monday by the Massachusetts Office of the Secretary of the Commonwealth.

David Varela managed the Back Bay branch and, according to the 30-pagecomplaint, wanted the attention of Morgan Stanley management. His goal wasto produce big sales volume for the new Morgan Stanley Allocator Fund, anasset-allocation fund that invests in cash, bonds and stocks.

The Allocator fund was first offered on Jan. 27, 2003, and now has $176 million in total assets, $125 million of which are mostly in the "B" class. Morgan Stanley is currently under investigation by the

Securities and Exchange Commission

for inappropriate selling of "B" class shares. The "B" shares carry a maximum back-end sales load of 5% and a 2.46% annualexpense ratio.

Third Prize Is ... You're Fired

Varela promised rewards to financial advisers who met demanding salesgoals for the Allocator Fund. Varela also made the consequences of failurejust as clear. According to the complaint, disappointing results could meana potential end to employment with the firm. Again, much like the movie.

Morgan Stanley had no comment on details of the Massachusetts complaint.

In the movie, management withholds good sales leads -- the so-calledGlengarry leads -- from deadbeats and will give them only to "closers" whoearn them. In the Morgan office, according to the complaint, Varelawithheld sales leads from financial advisers who didn't sell enough proprietary funds.

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Do I Have Your Attention Now?

Varela told the financial advisers in his branch that he was a militaryman, and he likened what they did to being at war. He referred to advisers as"troops" and told them to "kill the competition" and "conquer anddestroy," according to the report. However, Varela told the state duringthe investigation that he was never in the Marines.

An anonymous letter from a Morgan employee to the state securitiesdivision received on March 31, 2003, alerted regulators to the situation,according to the report. The financial adviser working at the Back Bayoffice said the pressure was "nothing short of extortion" by the branchmanager to sell the new Allocator fund.

Put That Coffee Down -- Coffee Is for Closers Only

Varela would routinely buy coffee and lunch for advisers as part of theAllocator sales drives. Varela and his sales manager, Scott Swaylik, were"constantly circulating information about the Allocator fund," the reportsaid.

In the Morgan branch, customers weren't told about the numerousincentives that could influence the sales of certain investments overothers, the report said. Managers knew that the aggressive promotions andcontests were questionable.

When team leader and financial adviser Salvatore Monastero said toomuch about the promotions in an email, Drew Hawkins, executive directorand associate regional director of the Northeast region, wrote back, "Sal,please keep all info on the promo in nonwritten form." The response was,"SORRY," the report said.

In other emails, Hawkins told team leaders, "Please DO NOT putanything in writing via E-mail or fax on the promotional part of ourcurrent campaign. Walk your team members through it VERBALLY," according tothe report.

According to Secretary of the Commonwealth William Galvin, Morganmisled regulators. "Morgan Stanley initially denied it ran contests or paidhigher commissions for affiliated funds. But when presented with evidenceto the contrary, they changed their story." The report says Morgan usesthese sales tactics and contests regionwide.

Varela is now getting all the attention from senior management he couldwant. According to the company, the Back Bay office was closed in May, amove that was unrelated to the investigation. Varela was relocated toanother office and is no longer in a management role with the company.Morgan released a statement on Aug. 11 noting that the NASD proposed rules on disclosure of sales incentives like the ones used by the Back Bay branch only this month. Meanwhile, according to the complaint, Morgan firm policies don't allow incentives for brokers to sell specific investments over others.

For more details,

click hereto read the administrativecomplaint. Or

click here toread dialogue from

Glengarry GlenRoss

.

Jonas Max Ferris is co-founder of

MAXfunds.com, a fund research and analysis company, and partner in an investment advisor offering managed accounts in mutual funds. He welcomes column critiques, comments or baseless accusations at

jferris@maxfunds.com.