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Morgan Stanley Sued by Ex-Employee Over Alleged Arbitration Ploy

Feb. 22 (Bloomberg) -- Morgan Stanley and six of its executives were sued by a former employee claiming they fraudulently obtained a $1.2 million arbitration award against him by misleading an industry regulator and its arbitrators.

Mark Mensack said he worked for Morgan Stanley from August 2008 to November 2009 before being forced out for questioning the legality of compensation received by the firm and some of its executives for retirement plan sales, according to a complaint filed in federal court in Camden, New Jersey.

When he tried to press a state-court whistle-blower suit, the firm sought Financial Industry Regulatory Authority arbitration and won its claim for money due under a note Mensack signed at the outset of his employment, according to today’s complaint. Morgan Stanley also won dismissal of a state-court case he had filed against it.

Mensack claims that in July 2012 he learned the firm had assigned the note to a different Morgan Stanley entity prior to the arbitration and had no right to pursue him over it.

Mensack sustained “severe emotional and physical distress as well as economic damages,” he said in the complaint.

Also named as defendants in Mensack’s complaint are Morgan Stanley Chairman James Gorman, former Chairman John Mack -- whom he alleges were aware of the “illegal” compensation scheme -- and Finra itself. Mensack said Finra breached its duty to provide fair and independent arbitrators and allegedly lost eight hours of recorded testimony in his case.

Mensack, of Cherry Hill, New Jersey, is seeking compensatory and punitive damages.

The New York-based firm’s media relations department didn’t immediately reply after regular business hours to an e-mail seeking comment on the complaint.

Nancy Condon, a spokeswoman for Washington-based Finra, declined to comment on Mensack’s allegations.

The case is Mensack v. Morgan Stanley Smith Barney LLC, 13cv1053, U.S. District Court, District of New Jersey (Camden).

To contact the reporter on this story: Andrew Harris in the Chicago federal courthouse at

To contact the editor responsible for this story: Michael Hytha at

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