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Morgan Stanley accused of misleading regulators in fund probe

Regulators attack new legislation designed to curtail their investigation powers

US State regulators are investigating whether Morgan Stanley missold mutual funds and have accused the bulge-bracket firm of lying to them in the early stages of the probe.

Securities regulators from New York and Massachusetts are accusing Morgan Stanley of failing to let investors know that its brokers and branch managers stood to earn extra compensation for selling in-house funds.

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