NEW YORK - In the months before it failed last year, the executive chairman of First Republic Bank sold more than $6.8 million worth of stock through Morgan Stanley, and Morgan Stanley has now settled an investigation that determined it failed to properly monitor the trades, reported The Wall Street Journal (WSJ) on Friday.

"Morgan Stanley agreed to pay $2 million to settle the investigation by the Massachusetts securities regulator. The bank neither admitted nor denied wrongdoing," the report noted.

The newspaper once reported that the chairman and several executives at First Republic sold more than $12 million in stock in the months running up to a banking crisis last spring that led to the collapse of First Republic, the second-largest bank failure in US history.

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The Massachusetts Securities Division investigation found that Morgan Stanley failed to ensure that First Republic's then-executive chairman James Herbert II, whose trades matched details in the consent order, wasn't trading on material non-public information. Herbert sold shares three times in the months before his bank's failure, avoiding some losses in the subsequent wipeout.

Massachusetts Secretary of the Commonwealth William Galvin said the case highlighted how banks have struggled both with monitoring their clients and managing their risks.

"What is going to make sure that the process in the banking industry going forward is sufficiently regulated to protect investors and, most importantly, depositors?" Galvin was quoted as saying in an interview.

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"The consent order is the latest black eye for Morgan Stanley's wealth-management division," said the WSJ report. "The unit is both a crucial profit center responsible for about half of the company's total revenue of late, but is also under heavy scrutiny from regulators over how it vets and monitors clients."