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Regulation and Compliance > Federal Regulation > FINRA

Ex-Rep Wins FINRA Arb Case Against Morgan Stanley

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Morgan Stanley’s New York headquarters (Photo: Bloomberg)

A three-person Financial Industry Regulatory Authority arbitration panel on Monday ordered Morgan Stanley to pay $70,000 in compensatory damages to a former rep who was terminated by the firm in 2017 and later claimed Morgan Stanley defamed him.

Morgan Stanley declined to comment Tuesday, one day after the FINRA Office of Dispute Resolution posted the award decision on the regulator’s website. Tracey L. Gerber, a securities attorney at the West Palm Beach, Florida, office of law firm Greenberg Traurig, who represented the firm in the dispute, didn’t immediately respond to a request for comment.

Despite the FINRA panel’s decision in broker David Hugh Bindelglass’ favor, the $70,000 award was far less than he had requested.

In asserting causes of action against Morgan Stanley that included defamation and “tortious interference with prospective economic advantage,” he initially requested $800,000 in compensatory damages, $800,000 in punitive damages, $6,814 in legal fees, and expungement and amendment of his Form U5 termination that had been filed by Morgan Stanley.

As part of a joint stipulation, Bindelglass later withdrew with prejudice his defamation claim, agreed to cap his monetary request at $225,000 and said he sought expungement solely on the ground that the language on the Form U5 was inaccurate.

The FINRA arbitration panel did not award him any legal fees. However, the panel did recommend the expungement of certain language used in the Form U5.

Bindelglass was with Morgan Stanley from 2009 through December 2017, according to the rep’s profile on FINRA’s BrokerCheck website. He was discharged Dec. 20, 2017, after allegations that he “(i) acted on instructions from clients’ family members in two households who were unauthorized to transact business in the accounts and (ii) communicated recommendations and accepted authorizations from clients in two other households, despite concerns regarding the client’s mental acuity,” according to a disclosure on his profile.

However, Bindelglass denied the accuracy of Morgan Stanley’s termination explanation entirely, stating in a comment on the disclosure that he “never engaged in unauthorized trading by acting on instructions from customers’ family members or other third parties not authorized to conduct business in customers’ accounts” and “never conducted trading on behalf of clients whose mental competency is in question.” He also, since then, “obtained sworn affidavits from the persons in question that directly contradict Morgan Stanley’s termination explanation,” he said in the comment.

The FINRA panel recommended that the language used by Morgan Stanley should be replaced by: “Loss of confidence based on employee having conducted several trades without written discretion in two customer accounts.”

Bindelglass was “very pleased with the decision” of the arbitration panel and the “exoneration he received” with the award, according to Scott Matasar, a partner at the Cleveland, Ohio, law firm Matasar Jacobs, that represented him in the dispute.

Although the amount awarded was much less than what was initially requested, “Bindelglass was not disappointed in the least,” Matasar told ThinkAdvisor by email Tuesday. The initial demand for $800,000 was “based on an estimate of my client’s economic damages in the event that Morgan Stanley’s actions towards him wound up permanently destroying his book,” but since then, many of the rep’s “many long-tenured, loyal clients ultimately followed him” to Cantella & Co., the RIA and broker-dealer based in Malden, Massachusetts that he currently works for, according to Matasar.

The rep ended up “retaining a much larger percentage of his book than he had expected might happen when we filed the case” and that was, “in part, why the damage claim was reduced” to $225,000 at the hearing in Newark, New Jersey, said Matasar, who also added it was “rare” for FINRA panels to award damages in any amount to advisors in such disputes.

— Check out FINRA’s Top 10 Biggest BD Arbitration Awards in 2019 on ThinkAdvisor.


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