By Chelsey Dulaney 

Morgan Stanley & Co. LLC will pay $4 million to settle charges that it failed to stop a rogue Rochdale Securities LLC trader from fraudulently trading $525 million in Apple stock in 2012, the Securities and Exchange Commission said Wednesday.

The SEC on Wednesday penalized Morgan Stanley for violating a market access rule when it failed to uphold credit limits for Rochdale when a trader in October 2012 routed a series of orders to purchase Apple stock to its electronic trading desk, which allows institutional customers direct market access.

The Rochdale trader, the SEC alleges, had received an order for stock in Apple but bought 1,000 times the number of shares requested in hopes of making money on the excess shares if Apple's stock price increased.

The amount exceeded Rochdale's daily trading limit of $200 million, but Morgan Stanley's desk increased Rochdale's trading limit, first to $500 million and later to $750 million. The SEC said that Morgan Stanley didn't conduct adequate due diligence before upping the trading limits.

Apple's share price fell that day, and Rochdale, a Stamford, Conn. institutional broker and equity-research firm that employed prominent analyst Richard Bove, took a $5.3 million loss on the unauthorized trades, causing the business to fall below its capital requirements and close last year. The trader, meanwhile, has been charged with fraud and sentenced to 30 months in prison

The SEC's investigation found that Morgan Stanley didn't have sufficient risk management controls in place to prevent the trades.

Morgan Stanley didn't admit or deny the findings and has since updated its procedures, the company said Wednesday.

"Morgan Stanley has updated its written procedures to address the issue identified in the SEC's order and is pleased to have this matter behind it," said Mark Lake, a spokesman for Morgan Stanley.

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com

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