Morgan Stanley Case Highlights Need to Disclose Outside Investment Activities

Dale Cebert was managing over $400 million when Morgan Stanley terminated his employment for failure to disclose his outside business activities.

Being terminated is always a serious matter any investment professional, but allegations were also added to his public online record, including:

  • Receiving multiple customer complaints
  • Operating a side business without approval

However, Mr. Cebert chose to dispute the allegations by Morgan Stanley, which is unusual in cases of this sort.

Investigation Findings Overturned

In a two-to-one ruling, FINRA arbitrators found that Morgan Stanley’s investigation and subsequent findings were “grossly negligent,” and communications with Mr. Cebert’s clients and handling of his public record were possibly “malicious.”

Mr. Cebert was awarded a multi million-dollar settlement, plus his old employer was forced to “expunge” or clean up his public record, which is quite an unusual outcome for this type of case.

Arbitration Requires Out-of-Pocket Resources

This case spotlights the possibility that the public records, intended to assist customers in selecting brokers and/or investment advisers, can do real harm to those individuals if information reported by firms is inaccurate or phrased in a way that, while possibly, technically accurate (or close), could be harmful to an individual’s career and earning potential.

Complicating the issue, the process of getting the record corrected, called expungement, is conducted through a formal arbitration process, takes on the flavor of a mini-trial, and can result in extraordinary consumption of time and resources. Out-of-pocket expenditures are often prohibitive. Mr. Cebert spent over $2 million in legal fees to have Morgan Stanley’s accusations corrected from his public file.

“Unfortunately, many advisers who feel they were wrongfully terminated aren’t in a position to fight,” Mr. Cebert said.

Disclosure of Outside Activities: Be Sure You’re in Compliance With Firm Policies

Disputing termination and career-damaging reporting of a termination event (done on Form U5), which can be made public, can have costs that start in the tens of thousands of dollars with no cap on total fees involved. To complicate things, even with a strong case, there is no guarantee that the outcome would be positive or restore a professional’s standing in the regulatory record.

Therefore, thorough and proper disclosure of any outside activities is most assuredly the safest route to avoid being caught up in these very difficult, costly, and damaging types of circumstances.

It’s highly advisable that brokers and investment adviser representatives be aware of their firms’ disclosure policies and procedures, which are usually made available in company literature, including Written Supervisory Procedures (sometimes called WSPs) or Compliance Manuals.

Disclosing any activities in a manner that is fully in compliance with firm policies is the surest way to proactively protect your position, reputation, and livelihood.

Contact Us for Assistance With Disclosure

Jacko Law Group, PC., has extensive experience assisting clients with proper disclosure of outside business activities (or with Form U5 disclosure matters shortly after a termination occurs). We’re available to assist you in determining the necessary actions required to help you to remain in compliance.

Contact us today with related questions, or with any other industry-related legal concerns you might have.

Leave a Reply

Your email address will not be published. Required fields are marked *