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Morgan Stanley (NYSE: MS) was fined $5 million for its role in the botched Facebook Inc. (NASDAQ: FB) initial public offering. The Secretary of the Commonwealth of Massachusetts, William Galvin, set the fine. According to Bloomberg, it was for “dishonesty, ethics violations and failing to supervise employees.” A Morgan Stanley analyst’s opinion of Facebook’s prospects was affected by the firm’s investment bankers. The fine is so tiny, it is not likely to dissuade banks from future violations, and it sends a signal that states believe they have little leverage in similar cases.

Perhaps Massachusetts believed its case against Morgan Stanley was too weak to stand the scrutiny of a court fight. Or, perhaps state officials believed that the infraction by the bank was minor. Morgan Stanley was faulted and the state said the firm would refrain from infractions of laws about research and investment bankers in the future. But, if the infractions existed, why was the fine so modest?

Morgan Stanley still faces scrutiny from federal agencies. The Securities and Exchange Commission apparently has taken up the case. But if the Massachusetts settlement is any precedent at all, Morgan Stanley will not be fined, or any penalty levied will be meaningless, given the bank’s balance sheet and revenue.

The notion that government can “send a message” over the behavior of investment banks that was clearly wrong did not live up to expectations in the Morgan Stanley case. Perhaps in very different cases, which involve the sales of mortgage-backed securities or Libor rigging, the government has taken and will take a harsher stance. In the meantime, hundreds of investors who put money into Facebook will find they have little recourse, even if Morgan Stanley behaved badly. It is as if the bank did nothing wrong at all.

Douglas A. McIntyre