By Stephen Gandel
December 21, 2012

Correction: 1/8/13, 3:30 PM.

FORTUNE — Wall Street still isn’t using its stick.

Morgan Stanley (MS) won’t “clawback” pay from a top banker whose actions in Facebook’s IPO resulted in the financial firm being fined $5 million on Monday. Massachusetts securities regulator William Galvin, whose office leveled the fine, contends Morgan Stanley pushed Facebook (FB) to improperly pass information to key analysts in the run up to its much-anticipated May stock offering.

Galvin called Morgan’s actions, particularly those of the senior banker on the deal, a clear violation of the research settlement that Morgan Stanley and other Wall Street firms signed in 2003.

Michael Grimes, the lead Morgan banker on the Facebook IPO deal and one of the firm’s biggest rainmakers, isn’t mentioned by name in the settlement. But it seems clear from the consent order that’s who Galvin was targeting. A number of news organizations identified Grimes as the “senior investment banker” the consent order was referring to. Morgan Stanley hasn’t denied that fact. “Morgan Stanley’s senior banker did everything but make the phone calls himself,” Galvin said in a statement.

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Earlier this year, Morgan Stanley said it had strengthen its so-called clawback rules. The firm said it would take back pay from any employee who had committed conduct detrimental to the company or caused harm to the firm’s reputation. “This does seem like the type of action that could trigger a clawback,” says Michael Deutsch, an employment lawyer who specializes in Wall Street pay. Nonetheless, a person close to Morgan Stanley confirmed that the firm has no plans to take any disciplinary action against Grimes or any of the bankers involved in the Facebook IPO. That includes clawing back pay.

Deutsch noted that the time of the settlement might complicate the use of a clawback. Technically, Morgan Stanley has yet to pay out bonuses for 2012. But bankers typically earn their year-end pay based on the deals they have done throughout the year. And in at least one other high-profile instance Morgan Stanley is pursuing a clawback of past pay against another former banker, even though the events that triggered the clawback happened in 2012.

And this may not be the end of Morgan Stanley’s Facebook-related legal payouts. A number of regulators are looking into the Facebook deal, including the Securities and Exchange Commission. A class action suit has been brought against Facebook and Morgan Stanley by investors who bought into the deal.

Galvin’s investigation has focused on whether Facebook and its bankers and analysts shared key information with top clients, and not the general public, about the aspects of the social network company’s business in the run up to the deal. Facebook’s shares began trading at $42, but fell to a low of $17.55. They recently traded for $28.

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At the time of the settlement with Massachusetts, Morgan Stanley said it was pleased to have put the matter behind the firm. In agreeing to the fine, the firm neither admitted nor denied doing anything wrong. “Morgan Stanley is committed to robust compliance with both the letter and the spirit of all applicable regulations and laws,” said a spokeswoman in a statement.

Grimes, 46, was relatively unknown just a few years ago. But in the past year or so, he has become one of Wall Street’s biggest rainmakers, which could play into the firm’s claw back decision. Grimes reportedly makes as much as $12 million a year. And this year could even be a bigger payday for the banker. Morgan Stanley reportedly collected nearly $70 million in underwriting fees on the Facebook deal.

Co-headed by Grimes, Morgan Stanley’s tech banking team has been the lead underwriter on nearly all of the recent big Internet IPOs, including LinkedIn (LNKD), Zynga (ZNGA), Groupon (GRPN) and, in May, Facebook.

And while the disappointing performance of Facebook has cooled the market for technology IPOs in general, it has barely dented Grimes reputation or his ability to win deals. According to Dealogic, in the seven months since the Facebook went public, Morgan Stanley has generated $32 million in fees from underwriting technology IPO, which is more than any other Wall Street firm. According to data provided by Morgan Stanley, there have been 35 IPOs or secondary offerings of stock by technology companies since the beginning of June. Morgan Stanley has been the lead banker in 14 of those deals, again more than any other Wall Street firm. The next closest firm JPMorgan has led 5 similar deals.

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Wall Street instituted clawback rules in the wake of the financial crisis, in response to claims that a bonus culture had promoted bankers and traders to take short-sighted risks that contributed to the demise of Lehman Brother, Bear Stearns and others. And in the past year, it does seem like Wall Street has become more willing to invoke clawbacks. JPMorgan Chase for instance clawed back the pay of Ina Drew and other top traders involved in the multi-billion trading losses connection to that firm’s so-called London Whale. Morgan Stanley, too, recently decided to clawback the pay of a former banker who was accused of assaulting a taxicab driver. The charges have since been dropped. The banker William Bryan Jennings is suing for his back pay.

“Morgan Stanley recently enforced its clawback policy against an executive whose misconduct caused financial or reputational harm,” says New York City comptroller John Liu, who was instrumental in getting Morgan Stanley to strengthen its clawback rules. “Now it’s paying a hefty fine for alleged securities violations. Morgan Stanley should hold the responsible executive — and possibly his supervisors — financially accountable, or explain why not.”

Correction: An earlier version of this story had New York City comptroller John Liu’s name misspelled.

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