by Miriam Rozen
March 25, 2024
Seven former Morgan Stanley brokers have won more than $3 million over allegations that the firm improperly withheld their deferred compensation when they moved to competitors, according to an arbitration award finalized on Friday.
The arbitration award could have broad implications for as many as 150 other ex-Morgan Stanley brokers who are arguing that the firm violated the Employee Retirement Income Security Act of 1974 by requiring them to forfeit backpay, according to Alan Rosca, one of the lawyers who represents the seven brokers.
The damages awarded in Friday’s decision include more than $1.5 million in backpay as well as around $859,000 in attorney fees and $9,000 in costs. It represents the entirety of what the claimants had requested, according to Rosca who is with Rosca Scarlato in Beachwood, Ohio.
“This is an important precedent and persuasive authority for other cases that are similar,” Rosca said. His firm has three other arbitration hearings scheduled before late May for three different groups of about 20 other ex-Morgan Stanley advisors with related claims, he said.
A spokesperson for Morgan Stanley, which has ratcheted up the portion of deferred pay out rates to as much as 15 percentage points, tagged the award as a “wrong result.”
“Morgan Stanley has long offered deferred compensation to financial advisors to reward them for loyalty and good guardianship. This is not a retirement plan, as prior arbitration panels have rightly decided, and we think the panel reached the wrong result,” the Morgan Stanley spokesperson said.
“We will continue to aggressively defend against meritless attacks suggesting otherwise,” she added but declined to comment on if Morgan Stanely would seek to vacate the arbitration award in federal court.
The arbitrators, including two public and one non-public panlist, did not provide an explanation for their ruling, as is customary at the Financial Industry Regulatory Authority dispute resolution hearings unless the parties ask for it.
The former Morgan Stanley brokers received a boost in November thanks to a ruling in a separate putative class action lawsuit brought by other advisors, including lead plaintiff Matthew Shafer, according to Rosca. Although the judge sent those plaintiffs to arbitration, he ruled that the firm’s deferred pay plan was likely governed by retirement law. (Morgan Stanley has filed a motion to partially undo the ruling.)
Morgan Stanley had previously told the court that “dozens” of former advisors were “piggybacking” on the Shafer case with their own arbitration claims. The cases have been closely followed as they follow a $79 million settlement in 2020 in a similar class action lawsuit against Wells Fargo Advisors. The plaintiffs in that case were represented by the same lawyers as Shafer at the Ajamie law firm.
The largest beneficiary of Friday’s award was Scott A. Weissman, who was with Morgan Stanley for 22 years–his entire career as a broker–until 2019, and currently is registered with Utah advisory firm Matrix Private Capital Group, which has $500 million in client assets, according to its most recent filing with the Securities and Exchange Commission. The panel awarded Weissman $614,786 in deferred compensation, $4,327 in expenses and $352,816 in attorney fees.
In addition to Weissman, the arbitrators also awarded :
Alfredo Serrano, a 21 year broker, who left Morgan Stanley after seven years in 2019 and is now registered with Stifel, Nicolaus & Co., $79,351 in deferred compensation, $210 in expenses and $44,012 in attorney fees.
Daniel G. Raupp, a 34-year veteran who left Morgan Stanley after 10 years in 2019, and is also now with Stifel, $147,751 in deferred compensation, $736 in expenses and $81,848 in attorney fees.
Gary L. Phelps, a 25-year broker, who left Morgan Stanley after seven years in 2019, and also at Stifel, $82,597 in deferred compensation, $235 in expenses and $45,812 in attorney fees.
Henry Enno, a 37-year broker, who left Morgan Stanley after eight years in 2017, and is also at Stifel, $137,779 in deferred compensation, $659 in expenses and $86, 407 in attorney fees.
Manfred Hegwer, a 30-year broker, who left Morgan Stanley after 12 years in 2022, and is now registered with LPL Financial, $283,732 in deferred compensation, $1,782 in expenses and $134,928 in attorney fees.
Thomas Bruce, a 16 year industry veteran who left Morgan Stanley after nine years in 2019, and is, like Weissman, no longer registered with Finra but with the RIA, Matrix, as an advisor, $197,971 in deferred compensation, $1,122 in expenses and $113,612 in attorney fees.
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