A Morgan Stanley advisor is taking the firm to court over millions in income he says he's lost amid anti-money laundering concerns.
Rodney Halvorson contends in a petition filed on Monday in California state court that he moved to Morgan Stanley from Bank of America's Merrill in 2022 with the understanding that he would be able to bring along his two most prominent clients, a father and son who are Mexican citizens. But rather than the smooth transfer he said he was promised, his clients were greeted with a five-month-long Morgan Stanley investigation into more than 30 years of their business dealings.
Halvorson contends that Morgan Stanley executives initially told him it would be fairly easy to move the clients over, but he was later informed that Morgan Stanley could not maintain their accounts. His petition states their accounts made up roughly 60% of his business and that losing them has cost him more than $6 million in income and bonuses.
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Halvorson's lawyer,
"But then they had to look good in the eyes of the Department of Justice and the eyes of other government agencies," Reif said. "That's why they did this, not because they wanted to stop handling this international business."
A Morgan Stanley spokesperson declined to comment on the case, which was first reported on by the industry publication FinancialAdvisorIQ.
Regulatory scrutiny on international accounts
Federal regulators have been trying to pull wealth managers to the forefront in their attempts to fight international money laundering. In August, the U.S. Treasury's Financial Crimes Enforcement Network
Among large Wall Street fixtures, Morgan Stanley has come in for particular questioning over
The scrutiny comes as Morgan Stanley has set itself the massive goal of eventually having $10 trillion in assets under management.
Client relationship 'beyond repair'
Along with Morgan Stanley, Halvorson's petition names Gregory Laetsch, managing director and market executive for the firm's Los Angeles offices, as a respondent. It was Laetsch, according to the filing, who repeatedly encouraged Halvorson to believe that there would be few obstacles to moving his clients over from Merrill.
Laetsch, the petition states, assured Halvorson that Morgan Stanley would merely follow industry standard "due diligence" practices when considering bringing on an international client.
"Laetsch represented to Halvorson that if BOA was satisfied with the legitimacy of his clients' business, he could not see how [Morgan Stanley] would not be equally satisfied," according to the petition.
Halvorson joined Morgan Stanley on May 6, 2022, and was quickly afterward able to arrange a transfer of accounts for one of his prominent clients — the son. The father, though, was involved in business dealings that necessitated a delay, according to the petition. When, months later, he tried to arrange a transfer again, he instead unwittingly set off the investigation into his clients by Morgan Stanley's anti-money-laundering and enhanced due diligence groups, the petition states.
Halvorson worked closely over the ensuing months to help Morgan Stanley vet his clients and clear up any possible misgivings. In the end, though, he was informed the firm could not accept their business and that the son would have to remove the accounts he had already transferred over, according to the petition.
Halvorson contends that Morgan Stanley knew or should have known that its internal policies were under suspicion and that the resulting scrutiny would pose obstacles to bringing on international clients.
"Rather, [Morgan Stanley] continued to keep Halvorson and his best clients unaware of the situation internally at [Morgan Stanley] that caused [Morgan Stanley] to enhance its due diligence and either abandon or retreat from its international business focus in Mexico and other international markets," according to the petition. On Aug. 7, 2023, Halvorson sent Laetsch an email saying his clients had vowed never to work with Morgan Stanley again and complaining that a client relationship he had "spent the last 10 years cultivating was irreparably damaged."
"It's quite rare in this business that you get to be a part of one's family to the depth of wives getting to know each other," he wrote. "Weddings, special celebrations, both my wife and I attended them all. This was no ordinary relationship; it was special and now I fear it is beyond repair."
The email said the clients had $17 million to transfer from Merrill and $22 million they were going to realize through a business sale in September. They also, according to the email, were planning "liquidity events" yielding in excess of $100 million in the next few years.
In the end, according to the petition, Merrill helped broker the sale of the business for $22 million. Had Halvorson known of the heightened scrutiny of international clients, the petition states, he never would have considered coming to Morgan Stanley.
Feeling stuck and seeking compensation
Halvorson had been at Morgan Stanley once before, working there for seven years before joining Bank of America in 2006. His petition says he was looking forward to returning, in part because his own son (not named in the legal filing) was then working as a financial advisor at Morgan Stanley.
Now, according to the petition, Halvorson, who's 67, feels bound to his new firm. As part of the incentives to join Morgan Stanley, he accepted a recruiting loan that he would have to pay back should he choose to go elsewhere. That loan has $300,000 in outstanding debt left on it, an amount that would result in "financial ruin" if Halvorson had to pay it, according to the petition.
Halvorson contends that other advisors who lost international clients after moving over were offered compensation. When he voiced concerns, he instead was greeted with retaliation, according to the petition, and he saw his payout rate fall to 20% from 44% after he failed to meet revenue goals set under the assumption he would be able to move his most valuable clients over.
Halvorson's petition seeks to have the case taken up by an arbitration panel administered by the Financial Industry Regulatory Authority, which has jurisdiction in disputes between brokerages and registered representatives. Reif said he filed in state court first to make Halvorson's complaints public and decrease the chances that Morgan Stanley would try to retaliate. He also wants to encourage witnesses to Morgan Stanley's alleged misrepresentations to come forward.
The petition alleges negligent interference with prospective economic advantage, retaliation, age discrimination and unfair business practice, among other violations. It seeks not only $6 million in lost income and bonuses but also treble damages, attorney's fees, prejudgment interest and punitive and exemplary damages.
"Morgan Stanley had the opportunity to fix the Rod Halvorson situation before the lawsuit was filed, but it chose to use retaliation tactics to harm him," Reif said.
