A former Morgan Stanley broker is suing his ex-employer for what he claims was a calculated plan to destroy his career and take control of his clients.
In a lawsuit filed Thursday with the Financial Industry Regulatory Authority Inc., 61-year-old David Bindelglass alleges Morgan Stanley wrongfully terminated him and used his form U-5 to tarnish his reputation. A U-5 form has to be filed with Finra whenever a broker is terminated.
Mr. Bindelglass alleges Morgan Stanley's actions made it harder for him to find a new job. Further, he claims the brokerage used the employment gap to publicize his form U-5 and dissuade long-standing clients from moving accounts away from Morgan Stanley.
Mr. Bindelglass now works as an independent contractor with Cantella & Co., but he was able to hold onto just $20 million of the $130 million he previously managed. After generating annual income of $300,000 from 2015 to 2017, he projects his 2018 income will be just $91,000.
The lawsuit, which will be directed to an arbitration panel, asks for $1.6 million in damages and expungement of Mr. Bindelglass's record.
"The point here is that thanks to Morgan Stanley's using the form U-5 mechanism as a weapon, my client is on track to earn this year roughly only a third of his average income prior to his termination," Scott Matasar, an attorney representing Mr. Bindelglass, said in an email to InvestmentNews.
Morgan Stanley declined to comment.
Mr. Bindelglass was registered with Morgan Stanley for eight years beginning in 2009, working in the firm's Paramus, N.J., branch office. He settled one client complaint of unsuitable investments in 2010 for $36,000, and in 2014 a client was awarded $96,000 for unsuitable recommendations, failure to disclose, breach of contract and negligence, according to Mr. Bindelglass' BrokerCheck report.
In March 2016, another client filed an unsuitability complaint regarding Puerto Rican municipal bonds that resulted in $5.4 million in lost profits and advisory fees. The claim was brought against Morgan Stanley, which eventually settled the case for $750,000, but did not name Mr. Bindelglass.
Morgan Stanley conducted a two-month audit of Mr. Bindelglass's client base. The firm determined that in two separate cases, Mr. Bindelglass acted on instructions from family members who were not authorized to make transactions in client accounts.
The firm used this as grounds to fire the broker, but Mr. Bindelglass disputed the charges. His lawsuit against Morgan Stanley includes affidavits from the clients in question contradicting Morgan Stanley's account.
Mr. Bindelglass also points out that Finra's investigation into his U-5 form closed without pursuing any enforcement actions.
According to the lawsuit, "Mr. Bindelglass was pleased that Morgan Stanley's kangaroo court investigation had been exposed for the sham it was. However, the fact remains that Morgan Stanley intentionally did much to destroy Mr. Bindelglass's reputation and career, and to steal his clientele developed over decades of providing his customers outstanding service at the highest ethical levels."
Mr. Bindelglass is one of a number of brokers claiming former employers are "weaponizing" U-5 forms and Broker Check reports against them. Another Morgan Stanley adviser, Dale Cebert, recently received a multi-million dollar award and a cleared record after arbitrators found the bank fumbled an investigation, put inaccurate information on his record and sent potenitially "malicious" communications to clients.
"From my perception, the misuse of the U-5 is an increasingly common practice as firms scratch and claw to keep assets from leaving when terminating advisers," said Mr. Matasar.