WGK Client Wins Big In Arbitration

WGK client Dale Cebert recently prevailed in a significant FINRA arbitration proceeding against Morgan Stanley.  Morgan Stanley recruited Mr. Cebert away from his independent broker/dealer in 2012, offering upfront and back-end bonuses in the form of forgivable loans totaling over $18 million.  The onboarding process was very difficult, resulting in two of Mr. Cebert’s partners leaving Morgan Stanley and returning to their prior broker/dealer, taking client assets with them.  Mr. Cebert contended that Morgan Stanley then experienced “buyer’s remorse” because the financial arrangement it made with Mr. Cebert was not profitable, after which it placed him on heightened supervision and launched a “special investigation” which resulted in his termination for cause in early 2014.  Morgan Stanley reported negative and untrue information on Mr. Cebert’s Form U5 in an attempt to explain the “cause” for his termination.  Additionally, Morgan Stanley financial advisors contacted Mr. Cebert’s clients to attempt to retain their business, and, in doing so, compared Mr. Cebert to Bernie Madoff and suggested Mr. Cebert was involved in illegal, and even criminal, activity.

Morgan Stanley then sued Mr. Cebert in arbitration, seeking to recover the balance remaining due on the promissory notes.  Mr. Cebert asserted counterclaims alleging that Morgan Stanley terminated him without cause, defamed and slandered him on the Form U5, through the media, and through its financial advisors, and interfered with his client relationships.  The FINRA arbitration panel heard testimony from 24 witnesses and reviewed 700 exhibits over 21 days of hearings.  The panel found that Morgan Stanley’s special investigation was “flawed” and that Morgan Stanley conducted and reported its investigation “with reckless disregard for its accuracy and completeness” and for the “defamatory consequences” it would have for Mr. Cebert.  The panel also found that Morgan Stanley’s communications with Mr. Cebert’s clients were “conducted in at least a grossly negligent manner (if not with a self-serving, malicious motive)” that defamed or were intended to defame Mr. Cebert in the minds of his customers.

The panel granted Mr. Cebert’s request that the false and defamatory statements be expunged from his Form U5 in their entirety and replaced with “terminated without cause.”  The panel also ordered Morgan Stanley to pay Mr. Cebert damages and attorneys’ fees in the amount of $2.4 million, in addition to allowing him to retain the nearly $9 million Morgan Stanley sought to recover under the promissory notes.  The panel assessed against Morgan Stanley punitive damages in the amount of $500,000, which is believed to be one of the largest punitive damages awards ever in a FINRA defamation claim.

The WGK legal team representing Mr. Cebert was led by Peter King, a founding member of WGK, Kimberly Koves, a WGK associate, and Dionne Fajardo, of counsel to the firm.  Paralegals Mary Gura and Jeffrey Rizzo and legal assistant Nancy Cook provided substantial support.

For a copy of the Award, please click here