Morgan Stanley Sues Oregon Broker Fired Over Inherited Account Issue
Morgan Stanley Wealth Management has asked a federal court in Oregon to restrain a former broker whom it fired in July as part of its long-running probe of miscoding of production numbers on inherited accounts.
Sevcik, who was terminated July 12 for taking credit for trades that should have been shared with Maddux, managed around $160 million in assets that he had inherited as part of the Former Advisor Program and which generated $1 million in annual revenue, Morgan Stanley alleged.
It’s the second time Morgan Stanley has gone to court to defend Maddux’s former accounts after it two years ago attempted–ultimately unsuccessfully–to handcuff another former member of Maddux’s five-broker Cedar Ridge Group team, David Sayler, who left to join UBS.
Since his registration with Davidson on July 26, Sevcik has been contacting customers and told at least one that he was the “‘fall guy’ in a regulatory investigation involving Morgan Stanley” in effort to woo the customer to Davidson, according to the complaint. Sevcik’s comments also violated Financial Industry Regulatory Authority rules by making misleading statements to the public, Morgan Stanley said.
“Morgan Stanley believes that Defendant’s contacts with clients, including his misleading statements, will only grow exponentially, in an effort to solicit business away from Morgan Stanley and further deprive Mr. Maddux of his retirement income,” the firm argued in its complaint.
Morgan Stanley has filed a parallel claim with Finra for a permanent injunction and damages that will proceed on an expedited basis if the TRO bid is successful.
Sevcik, who started his career at Morgan Stanley predecessor Smith Barney in 2008, according to BrokerCheck, could not immediately be reached for comment.
A spokeswoman for D.A. Davidson declined to comment citing policy not to discuss personnel matters. The Great Falls, Montana-based firm has 760 brokers, according to its website.
“Morgan Stanley will take appropriate action to ensure that departing employees comply with their legal obligations,” a spokeswoman for the wirehouse wrote in an email.
Former Morgan Stanley brokers are prohibited under the FAP from soliciting accounts for at least a year, or for the duration of the five-year transition period, according to the documents.
“I believed I could trust Defendant but, unfortunately, my trust was misplaced,” Maddux wrote in a declaration attached to the complaint against Sevcik. “Not only is Defendant attempting to divert clients to a competitor in violation of his obligations, I have since discovered that, in my view, he stole [emphasis in original] tens of thousands of dollars from me.”
Maddux, who worked at Morgan Stanley for 24 of his 37-year career, did not return a request for additional comment. He said in an interview last month before the restraining order was filed that the episode had shaken his trust in the retirement account program.
“It’s sweet, and a great program until you feel like you have no recourse,” he said.
Morgan Stanley’s lawsuit said the miscoded trades amounted to “tens of thousands of dollars of retirement income.” A person familiar with the matter said it is compensating Maddux and other retired brokers for improperly coded trades.
Morgan Stanley has fired over a dozen brokers as part of the inherited account review. A first wave of terminations included more than 10 in November, but compliance interviews and dismissals appear to be ongoing.
“It took years for Morgan Stanley to uncover Defendant’s improper conduct and when it did, and had completed its investigation, Morgan Stanley terminated Defendant’s employment,” the firm said in the complaint.
Many other veterans who were fired have been able to find new homes, including a California broker who earlier in July convinced the rest of his team to join him at independent broker-dealer LPL Financial.