Fidelity and Morgan Stanley Smith Barney Settle FINRA Arbitration

March 28, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2010, Claimant Fidelity Brokerage sought orders from the FINRA Arbitration Panel enjoining Respondents Beatty and Morgan Stanley Smith Barney ("MSSB") and anyone acting in concert with them from:

1. soliciting any business from any customer or prospective customer of Fidelity who Beatty served or whose name became known to Beatty while in the employ of Fidelity (to be effective immediately and for a period of one year); and

2. using, disclosing, transmitting or continuing to possess for any purpose, the information contained in the records of Fidelity, including, but not limited to, the names, addresses, and confidential financial information of Fidelity customers or prospective customers who Beatty served or whose name became known to Beatty while in the employ of Fidelity (to be effective immediately).

In addition to injunctive relief, Claimant Fidelity sought an order from the FINRA Arbitration Panel for the:

return to Fidelity of any and all records and/or documents in any form, received or removed from Fidelity by Respondent Beatty, containing information pertaining to customers or prospective customers of Fidelity who Beatty served or whose name became known to Beatty while in the employ of Fidelity, within five days from the date of entry of the Panel's order, including any and all copies.
- The scope would cover all records or documents, in any form, created by Beatty, MSSB, or anyone acting in concert with them, based on documents or information that was received or removed from Fidelity by Beatty; and
payment of Claimant's reasonable attorneys' fees and damages based on losses that Fidelity has incurred, or profits that Beatty and MSSB have earned (whichever is greater), as a result of Beatty's and MSSB's wrongful conduct.

In the Matter of the Arbitration Between Fidelity Brokerage Services LLC, Claimant v. Stephen Beatty and Morgan Stanley Smith Barney, LLC, Respondents (FINRA Arbitration 10-05444, March 16, 2011).

SIDE BAR: Above, I've tried to retain as much of the legalese as possible so as to give you a flavor for these non-solicitation and proprietary-information cases. Reduced to its basics, Claimant has demanded that the Respondents stop further contact with the clients, stop using the former firm's documents and information, and immediately return all the proprietary property.

Ceasefire

In December 2010, the parties settled this matter and submitted an executed Agreed Injunction and Stipulated Award to the FINRA Arbitration Panel. The Panel entered the award and stipulation, thus granting the following relief:

Solicitation

Until November 12, 2011 at 5:00 p.m., Beatty shall be enjoined and restrained, directly or indirectiy, and whether alone or in concert with others, including any officer, agent, representative, and/or employee of MSSB, from soliciting any business from any customer of Fidelity whom Beatty served or whose name became known to Beatty by virtue of his employment at Fidelity,

provided, however that,

the foregoing shall not prohibit Beatty and MSSB and those acting in concert with them from sending a single announcement card to the customers on the list Beatty returned to Fidelity in conjunction with the TRO to whom he has not already announced his contact information by written announcement, email, or by telephone within 30 days of the entry of this Stipulated Award, and
nothing in the Order shall prohibit Respondents from communicating with such customers

(i) who initiate contact with them, or

(ii) who were known to Beatty prior to the execution to his employment by Fidelity provided Beatty provides to Fidelity, prior to the execution of this Award, a verifiable list of those customers he knew prior to his employment at Fidelity.

Return of Records and Documents

Within 35 days of the entry of the Stipulated Award, Respondents, and all those acting in concert with them, shall return to Fidelity any and all records and/or documents in any form (whether original, copied, computerized, electronic, summarized, derivative, or handwritten) received or removed from Fidelity by Beatty and anyone acting in concert with him, pertaining to Fidelity customers or prospective customers who Beatty served or whose name became known to him by virtue of his employment at Fidelity, including all records or documents, in any form (whether original, copied, computerized, electronic, summarized, derivative, or handwritten), created by Respondents or anyone acting in concert with them, based on documents or information that were received or removed from Fidelity.

Information

Beatty and MSSB shall be enjoined and restrained from using, disclosing, transmitting or continuing to possess for any purpose, the information contained in the records of Fidelity obtained from or as a result of Beatty's employment with Fidelity including, but not limited to, the names, addresses, telephone numbers, e-mail addresses, and confidential financial information of Fidelity customers who Beatty served or whose name became known to Beatty by virtue of his employment at Fidelity, provided, however, that any such information may be maintained by MSSB for compliance with regulatory requirements,

Current Customers

The injunction and restraint shall not apply to documents or information

(a) regarding individuals who are currently customers of MSSB, or

(b) that any customers of Fidelity have provided to Beatty subsequent to his resignation from Fidelity provided Beatty produces to Fidelity a list of Fidelity customers who did so as well as the written communications evidencing that transmission prior to this Award being executed.

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