The financial regulator’s investigation found that MSIM, in its capacity as primary investment advisor of the The Malaysia Fund, represented to investors and the fund’s board of directors that it had contracted a sub-advisor based in Malaysia to provide advice, research and assistance to help the fund. The vehicle invests in Malaysian company securities.

However, the sub-advisor was not providing these services, and the fund’s board renewed the contract based on Morgan Stanley’s representation for over a decade, the SEC alleges. The cost of this to investors was some $1.8 million.

The charge, which the investment manager has agreed to settle, is part of an initiative at the regulator’s asset management unit to investigate the investment advisory contract renewal process and fee arrangements in the fund industry.

“We want to take the advisory fee setting process out of the shadows by scrutinizing the role of investment advisers and fund board members in vetting fee arrangements with registered funds,” said Robert Khuzami, director of the SEC’s division of enforcement.

In the case of MSIM, the Malaysia Fund’s board of directors approved the sub-advisor fees from 1996 to 2007, but the SEC alleges that the firm failed in its duty to provide the board with all the information they needed for the review process.

Morgan Stanley Investment Management was also responsible for preparing and filing the fund’s shareholder reports, which stated that AMMB, a subsidiary of Malaysia-based AM Bank Group, provided sub-advisory services to the fund for a fee. Due to this and the fact the services were not actually provided, the Commission further alleges that the firm “filed false information” in these reports.