Morgan Stanley Smith Barney will pay a $13 million penalty to settle charges that it overbilled investment advisory clients due to coding and other billing system errors.

The firm also violated the custody rule pertaining to annual surprise examinations.

Morgan Stanley was represented by Jonathan Polkes at Weil Gotshal in New York.

The order from the Securities and Exchange Commission (SEC) finds that Morgan Stanley overcharged more than 149,000 advisory clients because it failed to adopt and implement compliance policies and procedures reasonably designed to ensure that clients were billed accurately according to the terms of their advisory agreements.

Morgan Stanley also failed to validate billing rates contained in the firm’s billing system against client contracts, fee billing histories, and other documentation.

According to the SEC’s order, Morgan Stanley received more than $16 million in excess fees due to the billing errors that occurred from 2002 to 2016.  Morgan Stanley has reimbursed this full amount plus interest to affected clients.

The SEC’s order further finds that Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination.

Morgan Stanley also failed to maintain and preserve client contracts.

Without admitting or denying the findings that it violated various provisions of the Investment Advisers Act of 1940 and related rules, Morgan Stanley consented to the SEC’s cease-and-desist order and agreed to the $13 million penalty, a censure, and undertakings related to its fee billing and books and records practices.