Fired Broker Wins $2.4 Million from Morgan Stanley over Defamation
(Updates throughout with comment from Cebert.)
A Financial Industry Regulatory Authority arbitration panel on Monday ordered Morgan Stanley to pay a fired Florida broker more than $2 million for defaming him on an inaccurate regulatory report and through discussions his former colleagues held with his customers.
Although the brokerage giant initiated the case to recoup part of a signing bonus, arbitrators awarded Dale Cebert $2.4 million and required Morgan Stanley to alter the U-5 Central Registration Depository form it filed with regulators to say he was “terminated without cause” and to delete its assertion that he was fired for conducting an outside business.
When it filed the case in April 2014, Morgan Stanley said Cebert owed it $8.8 million on a “forgivable loan” note he signed 20 months earlier when he and about a dozen brokers and associates joined its Sumter Landing, Fla., office from independent broker-dealer National Planning Corp. nearby.
Cebert said in a phone call on Wednesday that Morgan Stanley offered him a nine-year recruiting deal worth $18.2 million all-in and paid $9.9 million upfront.
“It boiled down to [the fact] that they paid me a lot of money to bring my team over and because of a bumpy transition and not enough assets coming over, it gave them second thoughts and buyer’s remorse,” Cebert explained, citing management shifts and technical errors that made it difficult for him to transfer clients.
The decision, the third this summer that found brokerage firms liable for defamatory U-5 language, reverses long-term trends in favor of firms that have routinely pursued departing brokers for promissory note loan balances and aggressively sought to retain clients of departing brokers.
“My general rule is arbitrators rule in favor of the firm,” said Marc Dobin, a Jupiter, Fla.-based lawyer who often represents brokers in employment litigation but was not involved in the Cebert arbitration. “[Firms are now] going to be sensitive to U5 issues, in part because Finra has spent lots of time telling arbitrators how important expungement hearings are.”
In the Cebert case, the Finra arbitrators assessed $500,000 of punitive damages against Morgan Stanley for a “flawed internal investigation” that it acted upon with “reckless disregard for its accuracy” and for communicating with Cebert’s customers “in at least a grossly negligent manner (if not with a self-serving, malicious motive.)”
Some of Cebert’s managers and former colleagues told clients he was fired for criminal activity and compared him to Bernie Madoff, said Peter B. King, a lawyer at the Tampa law firm that represented the broker. King received almost $834,000 for his services, a tab paid by Morgan Stanley as part of the $2.4 million judgment.
Morgan Stanley also escalated clerical errors, King said. A staffer indicated that Cebert had no outside business activity and neglected to account for a recent $1,500 fine from New York State over an insurance registration error, lapses that the broker-dealer escalated into a reason for dismissal, he said.
Arbitrators accepted Cebert’s argument that he had disclosed all outside business activities and had paid himself through a self-owned entity to cover transition-related branch expenses that Morgan Stanley had agreed to cover, he indicated.
Morgan Stanley disagrees with the arbitration decision, a company spokeswoman said, declining further comment.
The firm was awarded $1.26 million, or 15%, of the $8.8 million note reimbursement that it sought from Cebert, but paid a net $2.44 million in damages, attorneys’ fees and costs after its award was deducted, according to arbitration award.
Cebert had asked for a minimum of $32 million in compensatory and punitive damages.
“It was a hard-fought battle but we thought the panel got it right,” said King.
Since April 2014, Cebert has worked at independent broker-dealer FSC Securities in The Villages. His BrokerCheck record in Finra’s database notes eight disclosure events over his 18-year career as a registered representative.