Two former Morgan Stanley Smith Barney brokers have been ordered to pay about $4.28 million plus interest to their former employer for the breach of promissory notes and other agreements.

The arbitration dispute centers on the termination of employment between Morgan Stanley Smith Barney and brokers Sean Anthony Lehmann and Kurt J. Halverstadt, according to the June decision from the Financial Industry Regulatory Authority (FINRA).

The total amount of the award is slightly less than the $4.74 million in damages that Morgan Stanley sought at the hearing’s conclusion for the promissory notes breach and related attorneys’ fees. In addition, the firm also requested between $100,000 and $200,000 for other damages.

Lehmann and Halverstadt were employed with Morgan Stanley Smith Barney until September 2009, when the firm first filed its claim against them, according to FINRA records.

In addition to the breach of promissory notes, Morgan Stanley Smith Barney also alleged that the respondents took part in unfair competition, interfered with contractual relations, violated confidentiality agreements, misappropriated trade secrets, violated a non-solicitation agreement and violated protocol on broker recruiting, according to the FINRA arbitration document.

The arbitration panel’s decision found that both Lehmann and Halverstadt had breached their respective promissory notes.

Lehmann has been ordered to pay almost $2 million for that violation, plus $229.46 in daily interest from Feb. 1 until it is paid.

Halverstadt has been ordered to pay $2.11 million plus $236.31 daily interest also from Feb. 1 until the sum is paid.

Those fines were reduced by $100,000 for each broker due to loss of income during their employment transition. Lehmann and Halverstadt also have to pay $75,000 for attorneys’ fees and costs related to those promissory notes.

The arbitration panel also ordered Lehmann and Halverstadt to pay $100,000 to Morgan Stanley Smith Barney in compensatory damages for breaching their protocol and non-solicitation agreement.

Other claims against the brokers, including violation of protocol related to broker recruiting, were denied.

Lehmann and Halverstadt have been ordered to destroy or return confidential or trade secret information to Morgan Stanley Smith Barney.

The pair also does not have exclusive rights to the name “Sullivan Group” for their business, the arbitration panel found.

"This legal action was to ensure that these departing employees abided by their contractual obligations they agreed to when they joined the company and to defend the company's legitimate business interests,” a Morgan Stanley Smith Barney spokesperson said in a statement. “We are pleased with the panel's decision."

Neither Lehmann nor Halverstadt, who are now employed at broker-dealer firm Purshe Kaplan Sterling Investments, were immediately available for comment.

Capital Investment Management Group Inc., which operates under the name Sullivan Group, was also named as a respondent in the case. But because it is not a FINRA member and did not voluntarily participate in the arbitration, the panel did not consider it as part of its decision.


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