Morgan Stanley Hit With Another Deferred Compensation Claim

Posted on March 29th, 2022 at 12:18 PM
Morgan Stanley Hit With Another Deferred Compensation Claim

Morgan Stanley’s legal woes over its withholding of deferred compensation from brokers who leave for another firm are multiplying.

The wirehouse, which faces a proposed class action lawsuit in federal court, has been hit with a similar group arbitration claim filed last week with the Financial Industry Regulatory Authority.

In the new Finra case, 10 ex-Morgan Stanley brokers in the New York City area raise nearly identical claims that the firm “improperly deferred” compensation in violation of the Employee Retirement Income Security Act of 1974 and also violated New York state law by withholding those funds when they left.

“When Claimants – after many years of working for Respondent – decided to part away with Respondent, Respondent decided to deny them a substantial portion of the compensation that Claimants had earned for their dedicated work, and keep Claimants’ hard-earned money to itself,” lawyers for the 10 brokers wrote in the complaint, which also tacks on a claim of violations of Finra’s catch-all Rule 2010 requiring members act with “high standards.”

By filing their complaint in Finra, instead of joining the proposed class action in federal court, the brokers are hoping for procedural advantages without having to obtain class certification and a speedier result given the clogged docket in the Southern District of New York, according to Jim Eccleston, a lawyer in Chicago who represents the brokers who filed the Finra case, and two other outside lawyers.

Eccleston stressed that a threat still persists in the federal proposed class action that Morgan Stanley will persuade the court to compel the plaintiffs to arbitrate. The plaintiffs in that case therefore could end up outside of a courtroom after they spend a lengthy time in federal court, he said.

The proposed class action in the federal court was filed by the same lawyers who in 2020 obtained a $79 million settlement with Wells Fargo Advisors based on the same ERISA claim. Those lawyers who are at two firms, Ajamie and Motley Rice, did not return a request for comment on how the arbitration filing could affect their case. 

According to the Finra complaint, Morgan Stanley “has been facing a wave” of individual claims already in arbitration from brokers around the country.

Eccelston plans to file other similar claims for other ex-Morgan Stanley brokers who reside in other states, including New Jersey, Pennsylvania, California, Tennessee, Texas, and Florida, grouping the claimants by their state residencies, he said.

A spokesperson for Morgan Stanley, which has roughly 16,000 brokers on its roster, declined to comment.


Morgan Stanley previously argued in the proposed class action that the deferred compensation program is a bonus plan, which is generally not covered by ERISA. 

The arbitration claim, filed on March 24, sought to preempt that defense. 

“A Morgan Stanley FA’s compensation—including their deferred compensation—is a ‘commission,’” lawyers for the 10 brokers wrote. The plan “results in the deferral of ordinary income, and the deferral is not ‘bonus’ money,” they added.

The 10 brokers do not make a specific damage claim but note that Morgan Stanley defers up to 15.5% of payout for its top earners and that brokers had to remain with the firm for eight years for that amount to fully vest. 

The higher dollar amounts at stake from ex-Morgan Stanley brokers were outlined in an amended complaint, which was filed, also on March 24, in the federal court case. The initially named plaintiff Matthew T. Shafer, who is now at Raymond James & Associates, and the 12 others, including five who were added as named plaintiffs earlier this month, claimed damages on average of roughly $309,000, based on an analysis of the figures listed for each listed in the complaint.

The potential damage amounts that the ex-Morgan Stanley brokers are seeking in their deferred compensation-based claims also are “substantial” enough to justify separate Finra actions rather than as a class, according to Scott Silver of the Silver Law Group, who represents investors and brokers from Florida and New York offices

“These aren’t $5,000 type claims,” Silver said.

Among those who filed the Finra complaint, according to the filing and their BrokerCheck records, are: 

  • A 12-year veteran broker who worked 10 years at Morgan Stanley before joining First Republic Bank in 2020.
  •  A 28-year veteran who spent seven years at Morgan Stanley before switching in 2016 to Wells Fargo Advisors.
  • A 31-year veteran who worked for Morgan Stanley for seven years before also switching in 2016 to Wells.
  • A 24-year veteran who worked for Morgan Stanley for six years before switching in 2016 to Wells.
  • A 24-year veteran who worked for Morgan Stanley for 22 years and moved to Stifel, Nicolaus & Co. in 2020.
  • A 14-year veteran who worked for Morgan Stanley for nine years before switching in 2019 to Wells.
  • A 21-year veteran who worked for Morgan Stanley for 10 years and joined First Republic.
  • A 21-year veteran who worked for Morgan Stanley for 10 before registering in 2019 with an RIA-friendly broker-dealer Purshe Kaplan Sterling Investments.
  • A 31-year veteran who worked for Morgan Stanley for 11 years before switching in 2020 to First Republic.
  • A 12-year veteran who worked for Morgan Stanley for 10 years before switching in 2020 to First Republic.

The original article can be found here.


Related Attorneys: James J. Eccleston

Tags: eccleston, eccleston law, morgan stanley, feature

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I am grateful to have found an outstanding law firm that specializes in securities matters. My lawyers were extremely knowledgeable, diligent, and are skilled litigators. No stone was left upturned. As a result of their experience and tenacity, the arbitration proceeding was dismissed in my favor.

Michael E.


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