FINRA: Morgan Stanley must pay indie adviser $2.5M related to defamation claim
A FINRA arbitration panel awarded an independent adviser $2.5 million relating to a defamation claim he made against Morgan Stanley after his dismissal from the wirehouse.
Arbitrators granted the award in response to Dale Cerbert's claim the firm engaged in a campaign of "defamation... libel and slander" in connection to his termination, according to the FINRA dispute resolution.
Cebert, who runs a practice in The Villages, Fla., had joined Morgan Stanley in July 2012 after a long career as an independent adviser. The plan was for Cebert's practice to become a new branch office with Morgan, but there were problems from the outset, Cebert says.
"We had a very bumpy transition," he recalls. "We came from the independent world, joining the wirehouse world, and really the transition was something that did not go well, and I think when that transpired it just caused the company to rethink the ... deal they had put into place."
In an email, a spokeswoman for Morgan Stanley offered a terse statement on the matter: "We disagree with the panel's decision regarding this case."
By Cebert's telling, problems began from the very start of his time at Morgan.
The individual who had been leading the recruiting effort to bring Cebert on board was quickly demoted following Cebert's arrival, he said, and replaced by a new complex manager. In Cebert's branch, he said his minority partners and clients alike did not receive the support they expected from Morgan in managing the transition. A few advisers jumped ship in the early months, taking their books of business with them and lowering the production numbers for the new branch
"The economics weren't looking so good," Cebert says. "Ultimately, we think that was what led to the termination."
Following Cebert's dismissal in 2014, Morgan Stanley sued in an attempt to force him to repay the promissory notes that had been offered as an enticement to join the firm, according to arbitrators. Later that year, Cebert counter-sued, leveling a bevy of charges against his former employer and seeking to expunge what he called the "false and defamatory language" from his Form U5 that is a matter of public record through the Central Registration Depository system.
The FINRA panel was generally sympathetic to Cebert's counter-claims, saying that it was willing to permit him to hold on to the bulk of the promissory notes and award him roughly $2.5 million in damages.
Cebert credits the FINRA arbitrators for conducting a thorough proceeding to sort through the point-counterpoint of the claims he and Morgan Stanley leveled at each other. FINRA reported that it heard from more than two dozen witnesses over the course of 39 hearings conducted over 21 days.
Some of those witnesses included Cebert's clients, he said, who proved persuasive in supporting his contention that Morgan Stanley had defamed and slandered him in a bid to wrest accounts from him following his dismissal when he reconstituted an independent practice.
"We had clients testify to the fact that they compared me to Bernie Madoff and said that I had done numerous illegal things," he says. "We believe that they did that in an attempt to retain our business, to retain our book once we reopened."
In recalling his experience with Morgan Stanley, Cebert attributes the bad breakup to a deficient onboarding process — that Morgan was not adequately prepared to absorb his independent firm into its operating structure.
"I think that their system is designed to move folks from other wirehouses into their platform, and what became clear through the testimony and in our experience is that they did not have a lot of experience integrating a large, independent practice into their platform," he says.
But apart from that rocky transition, Cebert says that he was unaware that leaders at Morgan were evidently planning for his ouster. He says that he was nearly floored when he was let go, even more so by the allegations listed as cause for the termination: that he had received numerous customer complaints, was the subject of regulatory actions and that he had been engaging in improper outside business activities.
After his minority partners bolted for their own independent practices, bringing many of their clients with them, Cebert says that he began to rebuild the book of business while still at Morgan Stanley. On the whole, he says that he found the wirehouse a hospitable environment and "had no intention of ever leaving" the firm.
"The transition was a disaster, but I was not unhappy working with Morgan Stanley," he says. "We had complete discretion on how we managed client accounts. I had no pressure from the company in that or any area."
Now that the FINRA arbitrators have settled his dispute with the wirehouse, Cebert is again running an independent practice -- Cebert Wealth Management, based in The Villages, 20 miles south of Ocala. He says that he welcomes the damages that the panel awarded him, but that the most significant win in the case was the clean U5 form, which the FINRA panel recommended be changed to read, "Terminated without cause."
"Financial award aside, getting my named cleared of wrong-doing and getting expungement is far and away the most important thing that came from that award," he says. "Thankfully, it's an opportunity for vindication and redemption and an opportunity for recovery of reputation."