Morgan Stanley Female Rep Survives Former Advisor Program Arbitration

March 11, 2019

What's 22 years of uninterrupted service worth these days to an employer on Wall Street? What's the value of such loyalty when that employee was a woman, who began in the biz in 1982? You want the over or under on $17,600?

Weren't you the one who tried to break me with goodbye?

In an Arbitration Statement of Claim and as amended, associated person Claimant Debow asserted breaches of contract and of the implied covenant of good faith and fair dealings; lost profits; emotional distress; negligence; failure to supervise; age and gender employment discrimination; unjust enrichment; and wrongful termination. At the close of the hearing, Claimant sought "$220,500.00 plus by one measure; $169,065.00 by another." It appears that Claimant's damages were caused, in part, by the termination of her "Former Advisor Program ("FAP") Agreement." In the Matter of the Arbitration Between Deborah Ann Debow, Claimant v. Morgan Stanley, Respondent (FINRA Arbitration Decision 18-00623, March 7, 2019)

http://www.finra.org/sites/default/files/aao_documents/18-00623.pdf

SIDE BAR: Although the FINRA Arbitration Decision asserts that an Amended and a Second Amended Statements of Claim were respectively filed in February and April, 2018, oddly, there is no assertion of the filing of the initial Statement of Claim.

Respondent Morgan Stanley generally denied the allegations and asserted various affirmative defense. Respondent sought $5,000 in expenses.

Do you think I'd crumble?

The FINRA Arbitration Panel fashioned the following Award:

1. Respondent is liable and shall pay to Claimant the sum of $17,600.00, our estimate of the realized amount she has been shortchanged in FAP payments up to the date of this award. The FAP agreement remains in effect.

2. In the alternative, Claimant may formally surrender her rights to all future payments under the FAP agreement by filing her notice of surrender with FINRA within 10 days of the date of this award. Such surrender must state that she surrenders all rights to future payments under the parties' FAP contract upon payment to her of $131,820.00, which she accepts as full and final payment of all Respondent's remaining payment obligations under the FAP agreement. Upon such filing, Respondent is liable and shall pay to Claimant the sum of $131,820.00, our calculation of the unrealized amount she is due for the remaining agreement term over and above the amount she has already received, which payment shall discharge Respondent's obligation to make any further payments. The FAP agreement shall remain in place and effective for its term in all provisions other than payments.

3. Claimant's age and gender discrimination claims are denied in their entirety.

4. Any and all claims for relief not specifically addressed herein, including attorneys' fees and punitive damages, are denied.

FINRA and/or the Panel assessed the following fees:

Claimant Debow: $200 Initial FINRA Filing Fee; $200 Discovery Motion Fee; $125 Contested Motion for Issuance of Subpoena Fee;

Respondent Morgan Stanley: $2,475 FINRA Member Surcharge; $5,075 Member Process Fee; $200 Discovery Motion Fee; $125 Contested Motion for Issuance of Subpoena Fee; $7,800 Hearing Session Fees

Did you think I'd lay down and die?

At this point, I would normally launch into a jeremiad of biblical proportion accusing the three FINRA arbitrators of drafting an incomprehensible bit of crap that is devoid of any meaningful content or context. We have no idea what the "Former Advisor Program" was or is. We have no idea as to how damages were calculated. We know jack. In truth -- at this point -- the FINRA Arbitration Decision is pretty much useless; however, immediately following enumerated section 4 above, we are presented with an "Arbitrators' Report." And that addendum fetches victory from the jaws of defeat and redeems this Panel's efforts and sheds light into darkness. If you listen carefully, you will hear the angels strumming their harps and singin' a happy tune. Truly, all is right in FINRA arbitration heaven:

Claimant, for 22 years a Financial Advisor ("FA") at Respondent, retired effective December 31, 2017, having agreed to participate in Respondent's Former Advisor Program that promised continued participation in revenues generated by her core book of business remaining at Respondent, on a sliding percentage basis over a five-year period. Pursuant to Respondent's policy, her accounts were distributed at retirement to other FAs in her office who had agreed to participate in the FAP. Unfortunately, due to an error by a Complex Administrator, the distributed accounts were not "swung" into the FAP where Claimant could participate in revenue generated by them. Respondent contends this error was eventually corrected, a retroactive amount for the payments missed was applied, and Respondent argued that Claimant has received and is receiving all payments due under the FAP.

Claimant contends that she could not have received all amounts due because the amount she received is significantly smaller than past revenue generated by her accounts would indicate. Respondent's witness attributed this difference to market conditions and differing FA investment styles, among other factors. Claimant argued, based on several occurrences prior to and after her retirement, that some accounts were diverted from the FAP or that the error in swinging the accounts into FAP was not completely corrected, preventing her receiving the revenue to which she is entitled.

Claimant received an amount for 2018 that is approximately one third of the amount she would have received if 2018 revenue had been equal to 2017 revenue, which was itself considerably less than 2016 revenue. There is no indication that Claimant's book changed significantly over these years, although there could have been some changes after Claimant's retirement. The record is devoid of evidence that would allow us to determine, in any detail, what any changes might have been. It appears to us that a two thirds shortfall in revenue is more than any expected changes could account for. Consequently, we find that there is some impediment still in allocating to Claimant the retirement benefits to which she is entitled under her FAP agreement, and that the agreement has been breached by Respondent.

Based on our review of the testimony and exhibits of record submitted in a two-and one-half day evidentiary hearing, the Panel calculated Claimant's losses incurred and to be incurred in the remaining FAP period to be $131,820.00.

Bill Singer's Comment

My deepest and most sincere compliments to the three Public Arbitrators on this FINRA Panel. Your thoughtful and deliberate "Arbitrators' Report" explains all that we need to know and in an eloquent manner.

According to online FINRA BrokerCheck records as of March 11, 2019, Debow was first registered in 1982. She has no disclosure items whatsoever on her industry record. As one of Wall Street's rare female veteran registered representatives, Debow survived -- and I think that she was owed more from her former employer Morgan Stanley after 22 years of apparently spotless service than what the Panel found was the firm's breach of her FAP Agreement.

To put it bluntly, 22 years of loyal service should have prompted something more from the likes of Morgan Stanley than shortchanging Debow over a lousy $17,600, which, if you do the math, works out to $800 for each of her 22 years of service to her employer. I'm almost certain that the firm paid far, far more in legal fees to outside counsel than $17,600.