Morgan Stanley's Nervous 401k Client

December 28, 2010

In a Financial Industry Regulatory Authority (FINRA) arbitration Statement of Claim filed in December 2009, public customer Robert Bryant alleged that he was a participant in his employer's 401(k) plan ("Plan"), which was managed by Morgan Stanley & Co. Claimant Bryant claimed that he had concluded that the stock market was becoming too risky for his investment goals and, accordingly, decided that it would be best to reduce his stock holdings and move to cash.

However, when Claimant Bryant informed his Morgan Stanley registered representative, James Miller, of his conclusions about the market and his decision to re-position his account into cash, Miller purportedly downplayed the client's concerns and advised him to remain in the market.  Claimant Bryant sought $81,000 as compensation for his losses in his Plan.   In the Matter of the Arbitration Between Robert Bryant, Claimant vs Morgan Stanley & Co., Incorporated, Respondent (FINRA Arbitration 10-00033, December 14, 2010).

And thus the stuff of which lawsuits are born.

Citing various causes of action including breach of fiduciary duty and negligence,  Claimant Bryant alleged that Respondent Morgan Stanley failed to supervise by permitting its registered representative Miller to provide erroneous information and inappropriate investment advice. Further, Claimant Bryant alleged that nobody from Respondent's Compliance Department nor any individual in a supervisory capacity ever contacted him.  Claimant Bryant sought $81,000 as compensation for his losses in his Plan.

Hooked on a feeling?

Okay, so here's the guts of the case: The public customer decided that he didn't want to be in the stock market and thought it best to go into cash. He then changed his mind.

Apparently, the customer ran his conclusions by his stockbroker.  Not all that unusual. However, we're clearly going to have a dispute as to whether the public customer  had made a firm "decision" to reposition the account and was wrongly talked out of that decision by his stockbroker (who may well be depicted as giving Bryant the wrong advice for the wrong reasons); or, whether that same customer had a mere "feeling" about what was the best response to a fading market, and after chatting with his stockbroker decided to defer any contemplated action.

Then there's this other interesting wrinkle: Claimant Bryant did not name his stockbroker Miller in the FINRA Claim.

That's not our version

Respondent Morgan Stanley generally denied the allegations and asserted various affirmative defenses; among which was the assertion that any losses in the Plan were caused by Claimant's own decisions and not by any action or inaction on the part of Morgan Stanley. Also, Respondent Morgan Stanley requested expungement of all references to the Bryant arbitration from James Miller's records maintained by the Central Registration Depository ("CRD").

What's the CRD?  Well, think of it as something akin to the dreaded "Permanent Record" that we all had in High School, and which any blemish thereon was rumored to be the death knell of acceptance into a reputable college.  When the public wants to get the low-down on a stockbroker, the information is usually obtained from the CRD.  

And the winner is

The FINRA Arbitrator denied Respondent Morgan Stanley's request for expungement of Miller's CRD, and found Respondent Morgan Stanley liable to and ordered the firm to pay to Claimant Bryant

  • $80,504.00 in compensatory damages; 
  • $1,500.00 in expert witness costs; and 
  • $26,566.00 in attomeys' fees.