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Regulation and Compliance > Litigation

Morgan Stanley's $10.2M Deal Over Advisor Expenses Heads Back to Court

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The $10.2 million settlement reached in 2019 between Morgan Stanley and financial advisors and brokers who alleged the wirehouse violated California law labor laws must go back to court after a U.S. Ninth Circuit Court of Appeals ruling on Monday.

U.S. District Court for the Northern District of California, “in approving the settlement, may have certified a class in which not all class members suffered an injury sufficient” to justify them being awarded damages as a result of alleged labor violations made by Morgan Stanley’s Automated Flexible grid program, according to the Ninth Circuit Court ruling.

Morgan Stanley declined to comment on the ruling on Friday.

The settlement involved a class action complaint filed by ex-Morgan Stanley broker Brandon Harvey in May 2018 in which he claimed he and about 3,000 other advisors and brokers alleged the firm didn’t correctly reimburse them for expenses.

Harvey was with the firm as a broker/rep from 2013-2018 and then left to join LPL Financial until 2021. He is no longer a registered broker or advisor, according to his report at the Financial Industry Regulatory Authority’s BrokerCheck website.

Ex-Morgan Stanley advisor/brokers Matthew Lucadano and Tracy Chen appealed the $10.2 million settlement in March 2020, claiming the deal wasn’t enough to compensate the advisors and brokers; they sought an additional $250 million.

Lucadano alleged that the federal judge who signed off on the settlement agreed to a deal in which not all class action members suffered a sufficient injury and the Ninth Circuit Court agreed with him. He was with Morgan Stanley from 2009-2014 and is now with LPL.

Chen was with Morgan Stanley as a broker/rep from 1999 until 2013, when he was terminated by the wirehouse for allegedly requesting and receiving reimbursement from the company for expenses described as client gifts when the orders for the gifts were canceled by the rep, according to FINRA.

Chen joined Oppenheimer & Co. but was allowed to resign after being barred from the industry by FINRA for allegedly converting firm funds, falsifying firm records and causing Morgan Stanley’s books and records to be inaccurate, according to FINRA.

(Pictured: Morgan Stanley headquarters in New York; Photo: Bloomberg)


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