The following statement is made by Shustak & Partners, P.C.
On June 30, 2014, a California appellate court reinstated and confirmed
a $5 million arbitration award Shustak & Partners had obtained against
Morgan Stanley in favor of two brokers Morgan Stanley had recruited from
UBS. The appellate court overturned a lower court's order vacating the
award on the grounds that Barry Kersh, one of three arbitrators who
heard the case, failed to disclose certain connections between some of
his family members and Morgan Stanley. Kersh was the "industry"
arbitrator in the claim, selected for his experience in the brokerage
industry. He is the long time branch manager of another brokerage firm
also located in San Diego, where the arbitration took place and where
the two brokers work.
Morgan Stanley argued Kersh should have disclosed that one of his
sons-in-law worked for Morgan Stanley and was going through a
contentious divorce with Kersh's daughter. The firm also argued Kersh
should have disclosed that his daughter previously worked for a
brokerage fim and may have maintained an investment account with Morgan
Stanley. Judge Lisa Schall of the San Diego Superior Court sided with
Morgan Stanley two years ago and vacated the award. Vitale and Paladino
appealed Judge Schall's ruling.
In reversing the lower court's ruling, the Court of Appeal reasoned that
while Kersh "failed to make certain disclosures, [the] undisclosed facts
could not cause an objective observer to doubt the arbitrator's
impartiality." The court also noted that "Morgan Stanley was aware of
certain key facts, namely its efforts to recruit two of the arbitrator's
coworkers, and thus the arbitrator was not required to disclose those
Erwin J. Shustak, Esq. and George C. Miller, Esq., of Shustak &
Partners, P.C. represented Morgan Stanley brokers Todd Vitale and John
Paladino in the arbitration. According to Mr. Shustak, the appellate
court's decision totally vindicated his clients and made it clear that
large brokerage firms like Morgan Stanley cannot play fast and loose
with the arbitration process.
"Morgan Stanley selected this same arbitrator to sit on this and three
other FINRA cases in which the firm was a party. The firm had
successfully recruited one of Kersh's sons-in-law away from Kersh's firm
and unsuccessfully attempted to recruit his other son-in-law. As the
appeals court found, MS knew these facts all along. Only after they lost
this case and faced a $5 million award, did the firm cry foul," said
Shustak. "The appellate court held that Morgan Stanley could not sit
back, wait to see the outcome of the case and, only when it was hugely
unsuccessful, play 'gotcha' by trying to vacate the award relying on
facts the firm knew all along," Shustak added.
Shustak & Partners, P.C., handles a wide range of securities and
FINRA-related cases. The firm has offices in San Diego, San Francisco
and New York and represents select broker-dealers, registered persons,
registered investment advisors and financial institutions in a broad
spectrum of complex securities litigation, arbitration and regulatory
[ Back To NFVZone's Homepage ]