Morgan Stanley’s Latest Broker Gag Effort Moves to Arbitration
(Updated with comment from Morgan Stanley in the ninth paragraph.)
A New Jersey broker sued on Tuesday by Morgan Stanley to inhibit his ability to call former customers at his new employer has agreed to sign an affidavit attesting that he does not possess customer lists or other documents or computerized data owned by the wirehouse.
The agreement is part of a consent order that Morgan Stanley and the broker Jon Stankovich signed on Wednesday that terminates the firm’s effort to obtain a restraining order and injunction in court and moves the case to Financial Industry Regulatory Authority arbitration.
The lawsuit signaled the return of Morgan Stanley’s aggressive stance against departing brokers following its withdrawal from the Protocol for Broker Recruiting last November. Its decision to drop the court case so quickly indicates that it may not have had strong facts to support its allegation in court papers that Stankovich was “undoubtedly using customer information he took with him from Morgan Stanley.”
Stankovich, who affiliated with Capitol Securities Management one day after Morgan Stanley dismissed him for allegedly diverting commission from his joint-production partner, agreed in the consent order to refrain from soliciting his former customers.
However, the consent order also permits him to return phone calls and emails from former customers who initiate contact, to meet with them and use documents they provide him, and to process account transfer requests out of Morgan Stanley.
The facts of the case, including mutual allegations of commission diversion by Stankovich against Paul GaNun, his former senior partner at Morgan Stanley’s Red Bank, NJ branch, will be argued in arbitration now press its claims for a longer-term injunction and damages before a Financial Industry Regulatory Authority arbitration panel.
“It’s sort of a hollow victory for Morgan Stanley,” said Thomas B. Lewis, a lawyer at Stevens & Lee in Princeton, N.J. who often represents brokers in employment litigation with firms. “The defendant has advised everyone by way of the consent order that he has done nothing wrong.”
Neither Stankovich nor his lawyer returned a request for comment.
“We are pleased with the Consent Order, which ensures that Mr. Stankovich will comply with his continuing obligations to Morgan Stanley,” a spokeswoman for the firm wrote in an email. “The Order prohibits further client solicitation and directs Mr. Stankovich to certify under oath his compliance with his confidentiality obligations.”
In the lawsuit, which claimed that Morgan Stanley “faces irreparable harm and loss” as a result of Stankovich’s alleged breach of his joint production contracts and misappropriation, the firm sought the return of client information within 24 hours.
Stankovich, who sources said produced around $525,000 last year, received full credit for more than 450 transactions in the joint production agreement totaling over $150,000, according to the lawsuit.
Joe Jianos, chief executive of Capitol Securities, on Tuesday characterized Morgan Stanley’s claims against the broker as “yet another example of an advisor and his clients being subjected to the hostile environment and culture of the now-diminishing big firms.”