Morgan Stanley Supervisor Goofs But Stockbroker Pays the Price

April 15, 2019

In today's blog, a veteran, female registered representative was terminated by Morgan Stanley for supposedly failing to timely disclose reportable events; and, thereafter, the firm sued her to recover balances due on two promissory notes. There's only one problem with Morgan Stanley's termination and lawsuit. As it turns out, the rep had filed timely, and the purportedly disclosable events may not even required reporting. If the rep hadn't been fired, repayment of the notes would not have accelerated. Despite all of that, Morgan Stanley still asked a FINRA Panel of Arbitrators to deny the rep's request for an expungement. Which makes you wonder where the hell FINRA, the industry's supposed self-regulatory-organization, is while this rep's life and career is turned upside down.  

Case In Point

In a FINRA Arbitration Statement of Claim filed in October 2017, Claimants Morgan Stanley asserted breach of two promissory notes as a result of Respondent Williams alleged failure to repay balances on said Notes following the termination of her employment. Claimants sought the alleged principal balance on the Notes of $432,247.00 plus $3,208.00 interest, and costs and fees. In the Matter of the Arbitration Between Morgan Stanley and Morgan Stanley SB FA Notes Holdings LLC, Claimants, v. Hanh Thai Williams, Respondent (FINRA Arbitration Decision 17-02632)

Respondent Williams generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting improper termination and unjust enrichment -- the latter claim arose from Morgan Stanley's alleged improper retention of her book of clients after her termination. Respondent Williams sought in excess of $4 million in compensatory damages.

SIDE BAR: The FINRA Arbitration Decision asserts that:

Respondent Hanh Thai Williams ("Respondent") appeared pro se until on or about January 22, 2018, after which Respondent was represented by Ralph Scott Bowie, Esq., Bowie & Beresko, APLC. Respondent again appeared pro se from on or about October 16, 2018.

On Stip

On or about October 10, 2018, Claimants filed the parties' Joint Stipulation for Dismissal of Claim and Counterclaim with Prejudice, which requested that the case remain open in order to allow Respondent Williams the opportunity to request the expungement of her Form U5 filed as part of her registration records maintained by the Central Registration Depository ("CRD"). In response to Williams motion for expungement, Claimants requested that the FINRA Arbitration Panel deny to relief.

For A While

Based upon a finding of defamation, the FINRA Arbitration Panel recommended the expungement of the Termination Explanation in Williams' Form U5, and that the disclosure state:

"Broker (Ms. Williams) was discharged for concerns regarding timeliness of disclosure of potential reportable events. This, however, was false because she DID provide all the information on a timely basis to her local supervisor, who decided to keep it in the local office "for a while," before finally forwarding the information and documents to the Morgan Stanley compliance office. Ms. Williams also kept her local supervisor regularly updated on the status of her reportable event." The Reason for Termination shall remain the same.

Bill Singer's Comment

Online FINRA BrokerCheck records as of April 15, 2019, disclose that Williams was first registered in 1992, and was registered with FINRA member firm Morgan Stanley from April 2014 to August 2017.

A Matter of Potential

If we go by the three independent FINRA arbitrators' recommended expungement, it seem a fair inference that Morgan Stanley wrongfully terminated Williams. As best the FINRA Arbitration Decision explains the underlying issues to us, Morgan Stanley had erroneously believed that Williams did not timely disclose potentially reportable events. Odd choice of a phrase, no? Not that she had failed to timely disclose events that were ultimately determined to have required disclosure, but, that she had failed to timely disclose events that, at best (or worst) Morgan Stanley is only able to characterize as "potentially" reportable. Which makes me wonder if it turned out that Morgan Stanley fired Williams for not timely reporting events that had never needed to be reported to begin with! 

Weaponized Forms U5

In what even I will concede was a nasty, biting, and caustic Blog article last week "FINRA Notice To Members 19-10 Should Have Said What It Meant", I noted, in part, that:

[F]INRA's Governors are co-opted by powerful industry interests and unwilling to antagonize such patrons. It is yet another example of the lack of fairness in structuring a so-called Wall Street self-regulatory-organization on a framework that limits the vote to only member firms to the exclusion of such mission-critical stakeholders as public customers and associated persons. Beyond its failed record of consumer advocacy, FINRA refuses to enter the fray on behalf of fairer policies for hundreds of thousands of industry registered representatives. Notably, FINRA did not draft the Broker Protocol and refused to involve itself in that agreement's expansion and decline. Similarly, FINRA has compiled a regulatory record as a quasi-collection-agent for its member firms per unpaid awards on promissory notes/EFLs, but there is no such record reflective of FINRA's regulation when its member firms fail to pay or fail to timely pay fees and/or commissions. Additionally, FINRA has rarely taken on weaponized Forms U5 or invoked its regulatory arsenal when confronted with evidence of workplace discrimination/harassment. 

Little did I anticipate that with the passage of only a few days, FINRA would provide me with a vivid example of what the above quoted-paragraph was noting! So . . . let consider the finding of the three independent FINRA arbitrators:
  • Williams was wrongly discharged by Morgan Stanley when the FINRA member firm incorrectly asserted that is was justified in firing Williams for "concerns regarding timeliness of representative's disclosure of potential reportable events";
  • Williams "DID provide all the information on a timely basis to her local supervisor . . .;" and 
  • Morgan Stanley's supervisor "decided to keep [the reportable-events disclosure provided by Williams] in the local office "for a while" before forwarding to the firm's compliance office.
Not Much of an Apology

Morgan Stanley apparently filed a Form U5 against Williams asserting hat she was fired for her failure to timely disclose potentially reportable events -- which turned out to be blatantly false as determined by three independent arbitrators. Thereafter, Morgan Stanley used FINRA's arbitration forum as a means of collecting on notes, which should not have been the subject of accelerated repayment but for Morgan Stanley's apparent misunderstanding of William's conduct. Making matters even worse, Morgan Stanley requested that the FINRA Arbitration Panel deny Williams' request for expungement. Seriously? After all of this, you can even sit back and take a non-opposition position? 

In Morgan Stanley v. Williams, the firm's basis for discharging Williams was found to be false by three independent FINRA arbitrators. How then did all of those errors by Morgan Stanley get addressed and redressed?  Apparently, the parties entered into a Joint Stipulation for Dismissal of Claim and Counterclaim with Prejudice. What were the terms of that Stip? We're not told. How much did Morgan Stanely pay Williams to settle? We don't know if that even happened. How much did Williams pay Morgan Stanley to settle? Again, we're just not told in the FINRA Arbitration Decision. We never quite see anything even remotely amounting to an apology.

I'm sure that there are those who will write to me (as they always do) and argue that neither Morgan Stanley nor Williams have any obligation to wash their dirty laundry in public and, you know, a private settlement is a private settlement -- and that's how it should remain. Except, I will respond, as I always do, that Williams had no choice but to defend herself in a mandated intra-industry arbitration in response to her former employer's lawsuit to recover alleged balances due on the Notes. So . . . I am never going to defend the tawdry practice of mandating private, alternative dispute resolution when an employee may be dragged kicking and screaming into the process, and the forum in which the arbitration is heard is run by an organization where only the employer has a vote and where the funding comes overwhelmingly from employer-generated fees. For a recent debate about this very issue, read: "Debating The Riddle Wrapped In An Enigma Of FINRA Intra-Industry Arbitration" ( Blog, February 1, 2019)

Although the Stipulation between Williams and Morgan Stanley resolved the pending litigation between them but for the expungement, that settlement effectively tosses everything into a box, locks it, and throws away the key. We don't know if Morgan Stanley admitted to wrongfully terminating Williams based upon its misunderstanding of the timely filing of the disclosures at issue -- or whether the firm still blames, in part, its former employee. We don't know if Morgan Stanley forgave all or part of the Notes' balances. We don't know if Morgan Stanley agreed to pay to Williams damages. On the other hand, it may well be Williams admitted wrongdoing, paid in full the balances on her Notes, and paid a monetary settlement to Morgan Stanley. Like I said, as a result of the parties' Stipulation and apparent settlement, we have no idea, either way, of how this all got put to bed. Who is hurt by such secrecy? What about similarly situated  former and current employees of Morgan Stanley who are now deprived of learning about the facts in Morgan Stanley v. Williams, and being able to use those facts in furtherance of their ongoing or anticipated defenses and/or counterclaims? 

What will be FINRA-the-regulator's response to this arbitration? Will it even investigate the matter? Moreover, why was there no referral to FINRA by this Panel given their findings?

Morgan Stanley Supervisor Goofs But Stockbroker Pays the Price ( Blog)

Fraudster and Identity Thief Who Used the Personal and Account Information of AT&T Customers to Purchase Apple iPhones Sentenced to Four Years in Federal Prison / Co-Defendant Pleads Guilty to the Scheme a Few Days Before Trial (DOJ Release)

SEC Obtains Final Judgments Against Parties Charged in Ticket Resale Investment Scams (SEC Release)

SEC Charges Dubai-Based Advisory Firm and Its Founder (SEC Release)

Owner of Woodbridge Group and Two Former Directors Charged with $1.3 Billion Investment Fraud (Ponzi) Scheme Involving 10k Victims (DOJ Release)

SEC Charges Former Woodbridge Directors of Investment with Fraud (SEC Release)

Response of the SEC Division of Corporation Finance Re: The Money Management Institute (SEC No-Action Letter)

FINRA Bars Rep Over Trust Allegations. FINRA Department of Enforcement, Complainant, vs John W. Cutshall, Respondent (FINRA Settlement Order)