Navy Reservist Brings Discrimination Claim Against Morgan Stanley
A broker in Naperville, Ill., has sued Morgan Stanley for “effectively terminating” him in March so it would not have to amortize his recruiting bonus while he was serving in the U.S. Navy Reserve following filing of a $1.6 million arbitration claim against him by the firm.
In a lawsuit filed in U.S. District Court in the Eastern District of Illinois on Friday, Rajesh Gupta accused Morgan Stanley of violating the federal Uniformed Services Employment and Reemployment Rights Act by forcing him to resign nine days before he was to return to active service for a period ranging from seven months up to three years. The law prohibits discrimination against active and reserve military personnel called to active duty.
Gupta voluntarily resigned from Morgan Stanley on March 1 while it was investigating him for “allegations regarding involvement in an undisclosed outside activity regarding sales of insurance policies,” according to his BrokerCheck report summary of his U-5 “separation” notice from the firm. He had received his call to duty in February.
The lawsuit alleges that Morgan Stanley was “unwilling to permit him to go on military leave and complete its investigation upon his return” because it did not want to amortize the $1.5 million balance remaining on a recruiting loan it had extended when he joined the firm in 2013. A “very large” portion of the bonus would have vested if he were to have been on leave for three years, it says.
A spokeswoman for Morgan Stanley, which in October filed its arbitration claim against Gupta for promissory note violations, did not immediately respond to a request for comment.
Gupta, who joined Morgan Stanley in March 2013 after being registered for seven years at J.P. Morgan Securities and Wachovia Securities, could not be reached for comment. He has returned from active duty and is looking for another brokerage job, according to Aaron B. Maduff, the Chicago-based lawyer representing him.
“Mr. Gupta believes that his USERRA rights were violated, which has cost him not only his employment but the vesting of bonuses which would otherwise have taken place even while he was on leave,” the lawyer said.
The broker agreed to have the U-5 termination notice that Morgan Stanley filed with regulators reflect a voluntary resignation rather than the more damaging “discharged” or “permitted to resign” designations “to preserve his reputation and his ability to find work,” according to the lawsuit.
The outside business activity allegations Morgan Stanley was investigating involved three clients whom Gupta had referred to his wife, identified in the lawsuit as working for an “insurance vendor” of policies that Morgan Stanley did not offer.
The referrals did not violate firm policy, Gupta asserts in the lawsuit.
“Neither defendants’ concerns nor the investigation were in good faith and indeed, defendant was making affirmative efforts to get one or more of plaintiff’s clients to take a negative view of him so as to build a case for a violation that did not exist,” it says.
The lawsuit cites “defamation” by the firm, among other claims.
Morgan Stanley gave Gupta a $2.2 million “forgivable loan” recruiting package when he joined in March 2013, according to the lawsuit. He was paid $900,000 upfront and was credited with another $700,000 for hitting targets tied to bringing over most of the $120 million in client assets he had overseen at J.P. Morgan, according to the lawsuit.
Morgan Stanley in October filed an arbitration claim seeking repayment of $1.6 million, according to the complaint.
“Plaintiff does not have the money to make the repayment, does not have the job, and has lost his client base, which defendant kept,” it says. “As a result Plaintiff attempted to negotiate a resolution of the demand, but was unable to do so.”