Shustak Reynolds & Partners, P.C. Obtains $486,615 FINRA Arbitration Award Against MSSB and Citigroup for Misrepresentations Made to Financial Advisor During Recruitment


Shustak Reynolds & Partners, P.C. Obtains FINRA Arbitration Award

San Diego, CA – Shustak Reynolds & Partners, P.C.,  announces that it obtained a $486,615.77 FINRA arbitration award against Morgan Stanley Smith Barney ("MSSB"), Citigroup Global Markets Holdings, Inc. and Citigroup Global Markets, Inc. ("Citigroup") on behalf of a financial advisor formerly employed by Citigroup's Smith Barney division ("Smith Barney") and its successor, MSSB. The FINRA Arbitration Panel unanimously concluded Citigroup and MSSB made negligent misrepresentations to the broker during his recruitment.

Smith Barney began recruiting the broker to join its downtown, San Diego office in the spring of 2009, several months before Smith Barney's joint venture with Morgan Stanley was scheduled to close. At the time, the broker was employed by Merrill Lynch as an international financial advisor, having spent the past 13 years at the firm building a substantial book of business comprised exclusively of international clients. Those clients required unique international lending and brokerage services.

During the recruitment process, the broker gave Smith Barney representatives detailed information concerning the specific investments and loans his customers held and stressed the importance of having all of those assets and loans transfer without issue to Smith Barney and MSSB. After discussing those investments and loans with the broker, Smith Barney representatives assured the broker that his clients' assets would transfer, without a problem, in-kind to Smith Barney and MSSB. They also assured him that after the joint venture MSSB would offer international loans and brokerage services equivalent to or better than those available at Merrill Lynch.

Based on those assurances, the broker resigned from Merrill Lynch and joined Smith Barney in mid-2009, days before the MSSB joint venture closed. As is standard practice in the industry, he was paid a seven figure up-front bonus in the form of a promissory note to be forgiven over time.

Immediately after joining the firm, the broker experienced severe difficulties transferring his customers' assets to MSSB. A substantial portion of those assets "bounced back" to Merrill Lynch, and MSSB would not, despite its representations to the broker, offer the lending services the broker's customers required. As a result, many of the broker's clients decided to leave all or some of their assets at Merrill Lynch or moved to other competitor firms. In mid-2010, after losing approximately 80% of his assets under management, the broker resigned from MSSB.

The evidence proved that Citigroup and MSSB negligently misrepresented their ability to transfer the broker's assets to the firm and their ability to offer the international lending and brokerage services the broker's clients required. As a result, the panel unanimously found in favor of the broker on his negligent misrepresentation claim and awarded him $487,615.77 in costs, expert fees and attorneys' fees. The broker's award was offset against the remaining balance due on his up-front note. Despite concluding the firm made misrepresentations to the broker, the panel declined to award compensatory damages. As is customary, the panel did not explain the rationale for its award.

Associate George C. Miller and senior paralegal Dominic Giovanniello were part of the team that handled the case for Shustak Reynolds & Partners, P.C..

Shustak Reynolds & Partners, P.C. handles a wide range of securities and FINRA related issues and has substantial expertise and experience in the securities and brokerage business. The firm has offices in New York and San Diego and represents investors and select registered persons, broker dealers and registered investment advisors in a broad spectrum of complex securities regulatory, litigation and arbitration matters.

Schedule a free initial consultation by calling Shustak Reynolds & Partners, P.C. toll free at 888-748-8748, or contact us online.

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