Regulation and Compliance > Litigation

Ex-Morgan Stanley Lawyer Alleges Retaliation After Raising Corruption Concerns

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Morgan Stanley headquarters in New York. Credit: Mark Kauzlarich/Bloomberg

In 2015, Christopher Garvey was a top in-house lawyer at Morgan Stanley in Hong Kong, overseeing the bank’s merchant banking and real estate investment in Asia. His eyes were set on the next level: managing director.

Garvey would never get that chance. He is now pursuing a retaliation case against the investment bank, claiming he was pushed out after raising his concerns about alleged foreign bribery and securities regulations.

Garvey’s retaliation complaint, filed in 2016, is pending before a U.S. Labor Department judge, and the New York-based bank is contesting his version of events. The dispute is months away from any resolution, as the lawyers spar over evidence and other preliminary matters.

The case, previously unreported, already is teeing up novel legal issues. The latest clash centered on how much information Garvey can share with litigation funders — third-party firms that financially support legal disputes in exchange for a cut of any settlement or monetary judgment.

Garvey said he wanted outside funding to keep his case going and that, as a former in-house lawyer, he had access to confidential documents, according to filings at the Labor Department. Lawyers for Morgan Stanley, represented by Morgan, Lewis & Bockius, argued successfully that Garvey should be blocked from sharing confidential and proprietary business information with any litigation funders.

“[Garvey] certainly has a common business interest with his prospective funders. But given the unsettled nature of the law, I am not persuaded that complainant shares a common legal interest, especially when it comes to disseminating another party’s privileged materials,” Larry Merck, the presiding Labor Department judge, wrote in his ruling. He added: “There is no reason to believe that [Garvey] will be unable to secure a funder merely because he cannot share respondent’s privileged materials.”

Litigation funding is a relatively new phenomenon whose growth has exploded in recent years. As litigation funders have become increasingly involved in complex corporate cases, their ventures have raised a host of new legal issues. Disputes involving outside funding have presented judges vexing questions about evidence and attorney-client privilege.

In Garvey’s action against Morgan Stanley, Merck said he could find no other case where one party sought to stop a plaintiff from disclosing sensitive information to an outside litigation funder. More commonly, one side in a dispute wants to force the other to disclose details about a relationship with an outside financier. A recent study found that state and federal judges had mostly rejected demands to pierce the secrecy of financing arrangements.

“Most discovery disputes in cases with third-party funders involve a defendant attempting to access documents or communications related to the plaintiff’s funding agreement with the third party,” Merck, based in Washington, wrote in his ruling. “Whether a plaintiff enjoys some form of privilege with its funder is a contested area of the law.”

Garvey’s interest in litigation funding doesn’t appear speculative. A year after leaving Morgan Stanley, Garvey in 2017 founded the Europe-based Sachenga & Co., which bills itself as an “advisor on litigation finance that operates on a global basis.” The firm, with a presence in London and Madrid, said it will focus on areas including corporate misconduct, corruption and consumer protection.

Garvey declined to comment, citing orders from the Labor Department judge and what he said was a “high risk of reprisals from Morgan Stanley.”

Morgan Lewis partner Sarah Bouchard, a Philadelphia-based lawyer and co-leader of the law firm’s whistleblower group, referred questions to Morgan Stanley. A spokesperson for the bank said in a statement: “Morgan Stanley strongly denies Mr. Garvey’s allegations and will continue to vigorously defend itself against his meritless claims.”

A hearing on Garvey’s claims is not expected until early next year. Merck said it was too soon to say which documents Garvey would be prohibited from sharing with any outside litigation funder. The judge rejected Morgan Stanley’s push to bar Garvey from using privileged information at all in pursuing his whistleblower claims.

It was not immediately known whether Garvey’s claims, or Morgan Stanley’s investigation, substantiated any violation of federal law. The U.S. Justice Department declined to comment for this story.

A former top in-house lawyer at Morgan Stanley, Raja Chatterjee, now head of compliance at the real estate company Tishman Speyer, spoke in 2012 about foreign-bribery compliance at the bank, where he had served as global head of the anti-corruption group in the legal and compliance division.

The bank in 2009 re-evaluated and enhanced its compliance program regarding the Foreign Corrupt Practices Act. That effort included “enhanced FCPA approval procedures in the merchant banking and real estate businesses (based on risk assessment).” The bank also said it increased training “specifically targeting FCPA compliance.”

U.S. Labor Department headquarters in Washington, D.C. Credit: Mike Scarcella / NLJ

Garvey: Ethical responsibilities are “not for sale.”

Garvey, who attended the U.K.-based University of Law and who was admitted to the New York state bar in 2000, filed whistleblower allegations in 2016 against Morgan Stanley, where he was employed at a foreign subsidiary in Hong Kong. He would spend a decade at the bank.

Available public records—including rulings from Merck—reveal general details about Garvey’s whistleblower claims. Many other documents remain confidential. The Labor Department, citing Morgan Stanley’s request for a order shielding broad disclosure of documents, in March would not provide The National Law Journal certain requested records. The agency did furnish a redacted copy of Garvey’s complaint.

Garvey, according to his complaint, said he became aware “in early 2015 … that Morgan Stanley was engaged in conduct in violation of the U.S. Foreign Corrupt Practices Act and other U.S. securities laws.” The “engagement of a consultant in India [gave] rise to potential corruption related concerns,” according to other records in Garvey’s case.

Garvey claimed he “objected to these practices repeatedly and strenuously, first by advising the individuals involved not to pursue their proposed course of action and, when that failed, by escalating the issue to senior management.”

Morgan Stanley hired an outside law firm to investigate the consultant’s work. That outside firm, which was not identified in Merck’s rulings, presented preliminary conclusions in October 2015. According to Garvey, Morgan Stanley’s chief legal officer, Eric Grossman, allegedly “reacted abruptly and angrily, first personally firing [outside counsel] and then immediately imposing a global hiring freeze.” Morgan Stanley subsequently hired another outside firm to continue the investigation, according to Garvey. Grossman has served as the chief legal officer at Morgan Stanley since 2012.

“Mr. Garvey raised his concerns about the relevant behavior to the individuals involved, their supervisors, his own immediate and ultimate supervisors and the company’s senior management in New York,” Garvey wrote in his complaint. “The company did not heed the warnings and instead chose to conceal the wrongdoing and to protect the individuals responsible for the illegal conduct.”

Garvey also described a visit that Philip Quirk, a Morgan Stanley managing director and the bank’s general counsel for Europe, the Middle East and Africa, made to the Hong Kong office in December 2015.

In a “very frank conversation,” Garvey said he expressed concerns to Quirk about what he viewed as efforts to cover up alleged misconduct. During that conversation, Garvey claimed, Quirk “stated clearly and unambiguously that [Garvey] should remember that he would require the support of the bankers involved … in order to be eligible for any future promotions at Morgan Stanley.”

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According to Morgan Stanley, Garvey told Morgan Stanley’s general counsel for investment management, Chris O’Dell, that he feared he would never receive a promotion to managing director as long as Quirk was his supervisor. Morgan Stanley said O’Dell tried to convince Garvey not to resign and told him that the path to managing director, while not easy, was not an impossibility.

Morgan Stanley, according to Labor Department records, contends Garvey left the bank voluntarily after growing dissatisfied with his salary and searching for new employment in Spain. Garvey, according to the bank, was searching for a new job “over a full year” before he resigned.

Far from forcing Garvey out, Morgan Stanley said it gave Garvey a positive performance review and a $122,540 bonus—the second largest awarded to the 23 executive directors in the bank’s Asia Pacific legal department—at the end of 2015, just months before his resignation. Promotions to managing director are rare, according to Morgan Stanley.

“No reasonable person would feel ‘compelled to resign’ on the heels of receiving [a $122,540] bonus and a positive performance review,” Morgan Stanley said in filings in Garvey’s case.

Garvey said the alleged adverse employment actions included a cut to his salary in January 2016 and what he described as a “blunt recommendation that he should look at his options elsewhere.”

An investigator at the Occupational Safety and Health Administration, which investigates claims arising under the whistleblower-protection provisions of the Sarbanes-Oxley Act, in March 2017 dismissed Garvey’s retaliation claim. The investigator concluded “the evidence shows [Garvey] has not suffered an adverse action.”

Garvey appealed the finding to the Labor Department’s administrative law judge office, where the dispute is now pending. He said in filings that “an attorney’s professional and ethical responsibilities are mandatory and not for sale.”

Merck in February turned down Morgan Stanley’s request to dismiss Garvey’s claims. “When taken as true,” Merck wrote, “these factual allegations describe sufficiently threatening, intimidating and coercive behavior.”