Sonn & Erez Wins Order Confirming $3 Million in Sanctions Against Morgan Stanley

Sonn and Erez announces that it has won a federal court order confirming an arbitration award upholding $3 million in sanctions against Morgan Stanley for discovery violations during a FINRA arbitration. “Judge Cook wrote a well-reasoned opinion rejecting all challenges to the award by Morgan Stanley and ordered that the arbitration award, including the $3 million in sanctions, be confirmed by the federal court,” said Jeffrey Sonn, Esq. of Sonn and Erez. During the course of the arbitration, Judge Cook noted that it was alleged that Morgan Stanley had withheld relevant documents from the Claimants, who were seeking damages for losses related to the sale of Puerto Rico funds and bonds. See Torres vs. Morgan Stanley, Case no 19-22977 (SDFL 2020) at DE30.

A copy of the district court order confirming the award is attached here. A copy of the underlying arbitration award is attached here.

The FINRA arbitration panel ordered the production of the documents that were withheld, including emails and a settlement agreement showing that $250,000 was paid to Angel Aquino after he was terminated. The federal court order noted that “While MSSB located 37 pages of emails related to the settlement that day, it did not provide them to Petitioners because it believed they were privileged. Id. On January 16, 2020, the Panel overruled MSSB’s privilege objections and ordered MSSB to produce the documents. Id. MSSB produced the email documents that day. Id. Petitioners again moved for sanctions. ECF No. 18 at 4. Finally, on January 20, 2019, MSSB produced 240 pages of documents encompassed by the Panel’s order.”

The Court noted the prejudice to the Petitioners/investors: “The Panel stated in the Award that they were ordering MSSB to pay Petitioners the monetary sanctions “upon consideration of the negative effect that [MSSB’s] noncompliance with the Panel’s Orders had on its efforts to achieve a fair arbitration hearing.” ECF No. 9-12 at 4. The Panel noted “the extreme prejudice [MSSB’s] failure of compliance caused [Petitioners’] counsel in preparing their case and asserting their claims without the documents which the Panel deemed were highly relevant to the dispute in question, the central figure of which was the terminated employee whose related documents were being withheld.””

The Court rejected Morgan Stanley’s argument that the FINRA panel exceeded their powers in ordering $3 million in sanctions for withholding the documents until trial. The trial court noted that FINRA Rule 12212 permitted sanctions for failure to comply with the arbitration code, and that under Rule 12511, a failure to cooperate in the exchange of documents may result in sanctions. The Court concluded that the arbitration panel did not exceed its powers and that the sanctions were compensatory, rather than punitive in nature. The $3 million of sanctions was actually less than the request by the investors for damages of $2,739,792 in compensatory damages and $515,624 of attorneys fees.

Sonn and Erez is very proud of its’ client’s victory over Morgan Stanley, because it shows that all parties are entitled to a fair hearing, and when one party prejudices the other by withholding relevant documents, a FINRA panel can award substantial sanctions to compensate the investors for not having the documents in time to prepare for the hearing.

For More information, feel free to contact Jeff Sonn at 833-Stocklaw.

Sonn Law represents individual and institutional investors nationwide in securities arbitration, litigation and consumer class actions.
Contact: Jeff Sonn, Esq.