After a nearly three-year battle, the public customers in a FINRA arbitration against Morgan Stanley and other respondents emerge victorious. No . . . the customers didn't get every penny that they sought but, nonetheless, the dollars add up to an impressive total. And, for good measure, the arbitrators tossed in punitive damages. Also, there is an interesting issue involving whether a proposed expert was conflict and otherwise disqualified from testifying.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in June 2012, Claimants causes of action included suitability, unauthorized trading, and churning in connection with Respondents' alleged mismanagement of Claimants' accounts. Pointedly, the claims referenced purchases of shares of E*Trade, Oculus Innovative Sciences Inc., ProShares Ultra ETFs, Daktroniks, Novatel, Research in Motion, Valence Technology, Tri-Tech Holding, Inc., Morris, Lazy Boy, Legend International and Southern Financial Group. In the Matter of the FINRA Arbitration Between Lon Lutz, M.D., Rahul Vohra, M.D. and Sherry Vohra, Joint Tenants, Barbara Carter Summers, Jeff Summers, M.D., and Michael Winkelmann, M.D., Claimants, vs. Morgan Stanley & Co., Inc., Morgan Stanley Smith Barney, LLC, Steven Mark Wyatt, Hilary Joseph Zimmerman, and Fred Eugene Brister III, Respondents (FINRA Arbitration 12-02257, July 24, 2015).
Respondents generally denied the allegations, asserted various affirmative defenses, and requested the expungement of all references to this matter from the Central Registrations Depository records ("CRD") of Respondents Zimmerman, Brister, and Wyatt.
It's Gonna Cost Ya
In addition to interest, punitive damages, attorneys' fees, and costs, Claimants sought the following damages:
At the close of Claimants' case-in-chief. Claimants submitted an Affidavit of Costs in the total amount of $91,513.30. Claimants also submitted a fee statement for expert witness fees in the total amount of $104,444.00.
On October 22, 2014, Claimants filed ta Notice of Dismissal with prejudice against Respondent Wyatt; and, accordingly, the Panel made no determinations against him. At the November 2014 evidentiary hearings. Respondent Wyatt made a verbal Motion to Intervene for the purpose of requesting expungement of his CRD record. The Panel granted Respondent Wyatt's Motion to Intervene without objection.
On October 28, 2014, Claimants filed a Notice of Dismissal with prejudice against Respondent Zimmerman; and, accordingly, the Panel made no determinations against him. Although present as a witness during the evidentiary hearings, Respondent Zimmerman did not pursue his request for expungement of his CRD record; and, accordingly, the Panel made no such determination.
Expert's Prospective Employment
During the December 2014 hearings, the Panel had denied the remaining Respondents' objection to allow the testimony of Claimants' expert witness. Respondents argued that the expert's prospective employment with the State of Mississippi would involve his conducting an investigation of the branch office at issue in this case. Respondents asserted that the expert:
Claimants responded that their expert witness should not be prohibited from testifying in this case simply because he would be reviewing documents and information received from the State of Mississippi. Further, Respondents asserted that the expert's retention did not involve any conflict of interest on his part and would not violate Mississippi's Ethics in Government laws.
After hearing the parties' oral argument during the February 2015 evidentiary hearings, the Panel denied the Motion and ruled that Claimants' expert witness could testify in this matter without conflict.
The FINRA Arbitration Panel found Respondents Morgan Stanley, MSSB and Brister, jointly and severally, liable and ordered them to pay to Claimants compensatory damages in these specific amounts:
As to the issue of punitive damages, the Panel found Respondents Morgan Stanley, MSSB and Fred Brister, jointly and severally, are liable and shall pay to Claimants punitive damages in these specific amounts:
In accordance with Miss. Code Ann. § 75-71-509(f) (2015) and Mississippi state law, which authorize an award of attorneys' fees upon a finding of punitive damages, the Panel found Respondents Morgan Stanley, MSSB and Brister, jointly and severally, liable and ordered them to pay to Claimants attorneys' fees in these specific amounts:
Additionally, the Panel found Respondents Morgan Stanley, MSSB and Brister, jointly and severally, are liable and ordered them to pay $68,350 in costs and $78,333 in expert fees. In accordance with Miss. Code Ann. § 75-17-1 (2015), Respondents were found jointly and severally liable and ordered to pay pre-award interest from July 13, 2010, until paid in full at the rate of 2.5% per annum and post-award interest at the rate of 4.5%.
Finally, the Panel denied both Respondents Brister's and Wyatt's request for expungement.