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Morgan Stanley hits back in $1.2M FINRA arbitration award

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Morgan Stanley is hitting back against a former broker who is seeking to vacate a $1.2 million FINRA arbitration award on the grounds that one of the arbiters may have had conflicting interests.

The firm filed a motion in a federal court in New York seeking to confirm the award in favor of Morgan Stanley, arguing the ex-advisor, Rachael Leigh Konz, did not challenge the proceedings until after the panel ruled against her, court records show. The motion is asking the court to throw out her petition to vacate the award filed in June.

Konz argued the three-member FINRA panel was not appointed in accordance with the regulator’s own rules, according to the June petition. One of the arbiters, Paul Mabry III, should have been disqualified because he was employed by a law firm that worked with other financial institutions — excluding him from being a “public arbitrator,” per FINRA rules, the petition argues.

“First of all, when you move to vacate you absolutely cannot attack the merits of the arbitration,” says Konz’s attorney, Joshua Brinen, of the New York-based Brinen & Associates. “What we’re saying is something was improper in the actual proceeding itself, and therefore, to render a decision is in manifest disregard of the law. We’re asking for a do-over.”

The original award resolved a dispute between Konz and Morgan Stanley that when she left the company, she failed to repay two promissory notes entered into at the time of her employment with the wirehouse in 2013. Morgan Stanley was awarded $1,197,844.69 plus interest and attorney fees in the amount of $189,201, according to the FINRA award.

FINRA Rule 13100 states public arbitrators may not be employed by a firm that derived $50,000 or more, or at least 10% of its annual revenue, from work with financial services firms. In the exhibit documents, Mabry’s law firm, Hanson Bridgett, appears to have represented firms in the financial industry and described itself on its website as a firm that works with financial institutions — and specifically regarding promissory notes.

Working closely with firms that negotiate promissory notes could have swayed the arbitrator’s decision, the petition argues.

In Morgan Stanley’s motion, the firm argues that Konz agreed to the panel before the award was handed down and waited to dispute the panel after the award went against her. “An initial pre-hearing conference was held and the parties accepted the composition of the panel, including arbitrator Mabry,” according to court documents filed by Morgan Stanley.

Nguyen Nguyen is vice president at Adara.
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An attorney for Morgan Stanley, Gregory Galterio, declined to comment.

“It doesn’t matter, because that’s not the point,” Brinen says, regarding when Konz decided to question the legitimacy of the arbitrators on the FINRA panel. “FINRA should have stopped it, and reset the arbitration.”

Brinen admits vacating a FINRA arbitration award is “exceedingly rare.”

Konz is an 18-year industry veteran and is currently registered with Merrill Lynch. She began her career with Citicorp Investment Services in 1999 and moved to Merrill Lynch a year later, per FINRA BrokerCheck records. She had stints at Wells Fargo and BancWest Investments, before landing at Morgan Stanley in 2013, per BrokerCheck.

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