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On the Precipice: Morgan Stanley, Citigroup, and an Unhappy Broker
Written: April 7, 2011

Before we even attempt to discuss this Financial Industry Regulatory Authority (“FINRA”) arbitration, I need to present you with the actual caption.  Frankly, it’s quite a complicated mess: 

In the Matter of the Arbitration Between 


Joel LaGore,  vs.   


Morgan Stanley Smith Barney, Morgan Stanley & Company, Inc., Smith Barney, a division of Citigroup Global Markets, Inc., Terrence Andrysiak, and Davis Vallie,  and  


Smith Barney, a division of Citigroup Global Markets, Inc., vs.  


Joel LaGore,  

(FINRA Arbitration 09-03947, March 28, 2011). 

In Part I of this case, ya got LaGore suing the Morgan Stanley/Smith Barney/Citigroup folks plus two individuals. In Part II of this case, the Smith Barney folks return the favor and sue LaGore. It’s something like Tinkers to Evers and then Evers back to Tinkers — but there’s no Chance. So, now that you got the scorecard and sort of understand who’s playing what position, let’s get into the play-by-play. 

LaGore Comes To Bat, Top of the First

According to the FINRA Arbitration Decision, Claimant LaGore “was on the precipice of a transition from Citigroup to Morgan Stanley when those firms announced that they were combining their businesses.” Ya gotta love the fancy-schmanzy lingo in these FINRA arbitrations. The precipice of a transition. A lovely turn of a phrase. I’m guessing it means that LaGore was about to jump ship from Citigroup and join Morgan Stanley. Alas, perhaps not the best of timing when it comes to leaving one employer for another. According to press reports, the merger plans were announced in January 2009 — just about the time that LaGore appears to have planned to leave. 

The Knock-Down Pitch

LaGore’s FINRA Statement of Claim, filed in June 2009, alleged that Citigroup and Morgan Stanley engaged in a plan to steal his client relationships. Among the steps taken in that nefarious plot, LaGore alleged that Morgan Stanley reneged on its offer to hire him.  Shortly thereafter, LaGore alleges that Citigroup instructed him to stay away from its office and ordered him not to contact any of his clients. 

Then things got real nasty. LaGore claimed that Citigroup and Morgan Stanley made false statements to his customers regarding his employment situation, causing him to suffer financial losses, including the loss of a transition compensation, retention bonus, and the loss of ongoing fee and commission revenue. 

Accordingly, the Claim asserts causes of action for violation of FINRA standards of commercial honor and just and equitable principles of trade; breach of contract; tortious interference; defamation; unfair competition; and civil conspiracy. 

The Dugout Empties

Respondents generally denied the allegations.  Among their affirmative defenses, Respondents alleged that any damages Claimant LaGore sustained were due to his own conduct.  Further, Respondents argued that any damages must be offset by amounts LaGore received from his new employer and/or other sources. 

Not content to simply play defense, Citigroup decides to get its hacks in at the plate too. In its Counter-Claim asserting breach of contract by LaGore, Citigroup alleged that on or about February 13, 2009, LaGore ceased his employment with Citigroup and by doing so he was in breach of a promissory note (the “Note”) executed on or about February 11, 2009. Citigroup alleged that Claimant owed it $45,803.14 plus $5,649.07 in taxes, for a total claim of $51,452.21. Claimant generally denied the allegations. 

SIDE BAR: So let’s do a quick recap. LaGore was apparently planning to leave Smith Barney for Morgan Stanley. Given the “precipice of a transition” language in the Decision, let’s just guess that the gameplan was to leave in January 2009. When Morgan Stanley announced its plan to acquire Smith Barney in January 2009, that sort of put in motion all the stuff alleged by the parties in this arbitration.  

According to the official FINRA Decision:

In its Counterclaim, Citigroup asserted the following cause of action: breach of contract. Citigroup alleged that on or about February 13, 2009, Claimant ceased his employment with Citigroup and by doing so he was in breach of a promissory note (the “Note”) executed on or about February 11, 2009. . .

The date of the promissory note troubled me because it implied that LaGore got some kind of inexplicable retention bonus on February 11, 2009. If that 2009 date is correct, it would mean that LaGore took the bucks and then took a hike two days later on February 13th.  That’s tough to swallow because if Smith Barney and Morgan Stanley were aware of LaGore’s plan to resign from the former and join the latter, why would Smith Barney have given LaGore what would have amounted to a retention bonus? 

In an effort to resolve this conundrum, I telephoned Claimant LaGore’s attorney, Mark L. Kowalski of the law firm of Jaffe Rait Heurer and Weiss. Kowalski informed me that the ”note was signed by LaGore on February 11, 2005.” Frankly, that makes a lot more sense. 

The Call at Home

The FINRA Arbitration Panel found Respondents jointly and severally liable and ordered them to pay to Claimant LaGore $93,737.60 in compensatory damages plus 5% per annum interest from June 29, 2009 until payment in full. 

However, the Panel also found Claimant LaGore liable for and ordered him to pay to Counter-Claimant, Smith Bamey $45,803.14 in compensatory damages plus interest at the rate of 6.5% per annum from February 27, 2009 until payment in full. 


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