Under a mixed and unexplained FINRA arbitration decision, a former Morgan Stanley broker will receive $900,000 in damages from the firm over his wrongful termination and defamation case.
Joseph C. DeNicola won the substantial payment from the wirehouse but lost his bid for an expungement of the allegations that led to his firing three years ago and a period of required heightened supervision with his current firm, according to the April 12
DeNicola’s exit from Morgan Stanley to Moors & Cabot Investments revolved around an email he sent to co-workers, the BrokerCheck disclosure states, although the content of the message remains unclear. The case follows other arbitration decisions over the past two months awarding significant damages for broker defamation claims against
The award is “probably a big victory for this financial advisor,” but the lack of any detail in the document shows why “it’s really important to request a reasoned award” explaining which claims led to the damages and enabling other brokers who may be in similar circumstances to see more details, said Amanda Butler Schley, a managing partner with the Business Law Group.
Butler Schley represented former Ameriprise advisor Denise Badgerow in a wrongful termination case that ultimately led to a Supreme Court ruling last month affirming the right to contest an arbitration decision
“A reasoned award will tell you why the panel came to that decision. An unreasoned award will say absolutely nothing, and it will just give the award and the amount,” she said. “From an institution that supposedly wants everything to be transparent, the arbitration process is anything but.”
Responses from parties
Representatives for Morgan Stanley declined to comment on the case. Reached at his Boston office with Moors & Cabot, DeNicola referred Financial Planning to an attorney who didn’t respond to a phone call and voicemail message. Representatives for Moors & Cabot didn’t respond to an email seeking comment.
Since January 2017, FINRA has footed the $400 payment to the chair of an arbitration if the parties’ jointly ask for an explained decision,
“An explained decision is a fact-based award stating the general reason(s) for the arbitrators' decision,” FINRA’s website states. “Legal authorities and damage calculations are not required. Parties must make the joint request for an explained decision 20 days before the date of the first scheduled hearing. The panel chairperson will write the explained decision and receive an additional honorarium of $400 for doing so.”
The Massachusetts Securities Division doesn’t release “investigatory material” like DeNicola’s email to colleagues at his prior firm, Debra O’Malley, a spokeswoman for Massachusetts Commonwealth Secretary William Galvin’s office, said in an email. “The heightened supervision is, however, already scheduled to end in just a couple of weeks, on May 13,” she noted.
The case
The state securities regulator’s disclosure about DeNicola’s April 2019 termination from Morgan Stanley followed three client arbitration settlements for a combined $96,865 and one other customer complaint denied over his 36-year career, according to BrokerCheck. A consent order from Galvin’s office forbade DeNicola from having “any principal, supervisory or managerial duties” for three years dating to the month after his firing.
“DeNicola was terminated from his prior firm over concerns about an email DeNicola sent to co-workers,” the BrokerCheck disclosure states. “For a period of three years, DeNicola will be subject to heightened supervision, which includes, in part, biannual meetings wherein DeNicola will review firm policies and FINRA rules, monthly reviews of DeNicola's internal communications and annual reviews of all DeNicola's Massachusetts customer accounts.”
In a reply on BrokerCheck, DeNicola wrote only that the allegations were “not investment related.”
He filed the arbitration case against Morgan Stanley in February 2020, alleging wrongful termination, defamation, unfair competition, breach of good faith and fair dealing, unpaid compensation and benefits and interference with economic relationships, according to the award document. He requested a change in the officially stated reason for his termination to “voluntary” and a full deletion of the termination explanation, the document states. At the hearing, he asked for more than $2.5 million in damages.
Morgan Stanley denied the allegations and called for the panel to dismiss DeNicola’s claims while awarding the firm attorney fees and other costs, according to the award document. The panel denied Morgan Stanley’s motion to dismiss the case prior to nine “pre-hearing” sessions and four days of hearings between November 2020 and April 2022.
In the decision, the panel held Morgan Stanley liable for $900,000 in compensatory damages to DeNicola while rejecting his requests for an expungement and any other payments. It also split the hearing sessions’ fees between the parties equally.
The dearth of information about the case offers a lesson to other brokers pursuing defamation cases or other claims against their prior firms, said Butler Schley of Business Law.
“It’s really beneficial to all of the financial advisors involved in arbitrations to request reasoned awards, because then the record will demonstrate why the arbitrators came to their conclusion, making it public record,” she said. “You can't say a lot about this without the statement of claim.”
