Fired Morgan Stanley Broker Spars with Firm Over Securities-Backed Lending
A former West Virginia broker who says Morgan Stanley fired him for refusing to sell a securities-backed loan product he considered harmful to elderly investors has sued for wrongful termination, a claim the firm calls “pure fiction.”
Benjamin Burton, who also asserted in a claim filed in March in a West Virginia county court that he is owed back pay and damages for hitting a $1 million production target within five years of starting the firm’s training program, agreed last week to transfer the case to binding arbitration, according to court papers and to his lawyer.
“I would like to litigate this in a public forum so people could know the ramifications of what they are buying when they buy this product,” said Travis Griffith, his Charleston-based lawyer, about the securities-backed loan product. “Even in arbitration, I think we have a winner.”
The claim about promoting loans backed by investment portfolios is a sensitive one for Morgan Stanley, whose executives have told shareholders they have been boosting net interest revenue and catching up to rival bank-owned brokers by promoting credit products and services to wealthy investors. Last year, the firm agreed to pay Massachusetts $1 million to settle charges of running sales contests to promote securities-backed lines of credit, but neither affirmed nor denied the state’s findings.
A company spokeswoman denied the lawsuit’s assertion that Burton was fired for refusing to “push a new product which he considered to be predatory lending and elder abuse.” The complaint described the product as a “securities-based lending mechanism dealing with a margin loan,” although margin loans are used only for buying securities while securities-backed loans cannot be used for that purpose.
“Mr. Burton was terminated after, among other things, he took discretion without prior written authorization in a 92-year-old client’s account in violation of firm policy and credited himself with revenues that should have been shared with another advisor,” spokeswoman Christine Jockle wrote in an e-mail on Tuesday. “His claim that he was terminated for his refusal to promote a product or to engage in elder abuse is pure fiction.”
Burton last September consented to an order from the Financial Industry Regulatory Authority that suspended him from working as a broker for three months and fined him $7,500 fine for trading at least 40 times without the customer’s and the firm’s written authorization, according to his BrokerCheck history. He received verbal authorization from the customer, it said, but violated firm policy by failing to get written permissions and making related false statements on compliance questionnaires.
Burton, who did not admit or deny the findings, is in his early 30s and is now working as a tax preparer at half his pay as a broker, according to Griffin. Burton could not be reached for comment.
The lawyer, who said he did not represent Burton in the Finra investigation, alleged that Morgan Stanley used the written consent slip-up as a subterfuge.
“Trading on verbal consent was a very common occurrence” in the Charleston branch, he said in an interview. “After they terminated him for not selling the loan product, they turned him in to regulators with a report of violations that supported their proposition that he was fired for cause.”
He said he is researching New York law to see if he can bring claims in arbitration not only for wrongful termination but for payment of the $100,000 bonus that Burton was owed for producing gross revenue of $1 million within five years of his hire. The broker, who joined Morgan Stanley and the brokerage industry in September 2012, was fired before the payment was due, the lawyer said.