Morgan Stanley Ordered to Pay Financial Advisor $2.44 Million for Defamation

On August 1, 2016, a Financial Industry Regulatory Authority, Inc. (“FINRA”) Panel issued an Arbitration Award (“Award”) in favor of financial advisor Dale Cebert, finding that Mr. Cebert’s former employer, Morgan Stanley Smith Barney LLC (“Morgan Stanley”), defamed Mr. Cebert after he left the firm.  The Panel found that Morgan Stanley’s internal investigation was “flawed” as it was “conducted, acted upon, and reported with reckless disregard for its accuracy and completeness.” The Panel also found that Morgan Stanley made defamatory statements to Cebert’s customers “in at least a grossly negligent manner (if not with a self-serving, malicious motive).”  As a result, Morgan Stanley was ordered to pay Mr. Cebert $2.44 million, inclusive of prejudgment interest.

Morgan Stanley initiated the case against Mr. Cebert in 2014 to collect on unpaid promissory notes. While the Panel ordered Mr. Cebert to repay $1.26 million due on three of the notes, the Panel allowed Mr. Cebert to keep the remaining $8.7 million balance on a $10 million promissory note. The Panel also ordered Morgan Stanley to pay $500,000 in punitive damages.

Mr. Cebert’s victory may be good news for financial advisors in similar situations, as it is typically difficult for financial advisors to prevail in promissory note collection cases.  A copy of the Panel’s Award can be viewed here.

About Faruqi & Faruqi LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, antitrust, wage and hour, and consumer class actions as well as shareholder derivative and merger and transactional litigation.  The firm is headquartered in New York, and maintains offices in California, Delaware and Pennsylvania.

Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers and employees.

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About Christine Goodrich

Christine E. Goodrich is a Senior Associate with Faruqi & Faruqi, LLP’s New York City office.  Ms. Goodrich’s practice is focused in securities arbitration, litigation and regulation.

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