Brokers Who Left Morgan Stanley for Merrill Win U-5 Defamation Battle, Lose Note War
In a Solomon-like decision, a Finra arbitration panel this week ordered a pair of brokers to repay Morgan Stanley more than $1.6 million of promissory note balances they owed but required the firm to give them back almost half the amount for breaching their employment contracts.
The complex case involves Lee Anne Bloom and Richard R. Dwyer, who left Morgan Stanley’s Winter Park, Florida, branch after two-and-a-half years in November 2010 to join Merrill Lynch in Orlando.
Morgan Stanley also was ordered to wipe their regulatory U-5 registration records clean of the firm’s accusation that they were under investigation when they jumped to Merrill.
“We were pleased with the award,” said Rogge Dunn, the lawyer representing the brokers. “It vindicates my clients.”
The three-person Financial Industry Regulatory Authority arbitration panel did not go that far in their award document, a form that rarely spells out factual details of allegations or reasons for decisions. But the arbitrators accused Morgan Stanley of staining the brokers’ records with allegations about internal investigations “so misleading that they rise to the level of being false and totally vague as to [the brokers’] involvement in any wrongdoing.”
A Morgan Stanley spokesman said the company was pleased to have recovered the $808,762 in unvested balance that each broker had on the forgivable loans they were given when they joined in 2007 from Suntrust Investment Services, but “does not believe there is any basis for a finding of breach of contract or defamation.”
The arbitrators accepted evidence that Morgan Stanley reneged on promises to the brokers that it would let them charge clients the same interest rates on portfolio-backed loans and receive the same level of service that they had at Suntrust, Dunn said in explaining the $770,000 of compensatory damages and $73,000 of fees that the brokers were awarded.
Bloom and Dwyer had been charging a securities-backed lending rate of LIBOR plus 65 basis points when they negotiated their move to Morgan Stanley in early 2007, but the rates doubled and in some cases tripled over time, Dunn said. As a result, the brokers captured no more than $200 million of the $500 million of client assets that they had managed at SunTrust, he told the arbitrators.
Dunn also said that some clients left because of poor response times from Morgan Stanley’s trust department. “You can’t promise a recruit the sun the moon and the stars in the recruiting process and then renege on your promises without consequences,” the lawyer said.
Two weeks ago, a Finra arbitration panel acidly dismissed claims from a former Morgan Stanley broker in California that he was entitled to keep more than $300,000 of forgivable loans because bad service on a client’s loans forced him to follow the client to UBS.
In another recent arbitration decision, a team of brokers who left JPMorgan for Morgan Stanley succeeded in expunging alleged slurs that their former employer had put on their U-5 termination notices.
Morgan Stanley was formally awarded a total of $2.23 million from the pair, including accrued interest of almost $36,000 calculated at a 4.75% rate and $146,000 in lawyers’ fees and costs. It netted $1.44 million after deducting compensatory damages paid to the brokers of just under $780,000 and attorney’s fees and costs of $73,220.