Take the case of Mark Mensack, a 49-year-old, former financial advisor at Morgan Stanley (MS) with a wife, three children and, at least for now, a house in Cherry Hill, New Jersey. Mensack worked at a Morgan Stanley office from August 2008 to November 2009. Six months after he got there, he claimed he found wrongdoing involving what he called a “pay-to-play scheme” in $4 billion of 401(k) assets that Morgan Stanley administered.
In accordance with Morgan Stanley’s code of conduct, Mensack reported his ethical and legal concerns through the management ranks and, eventually, to the board of directors.“Morgan Stanley prohibits retaliation for reports or complaints that are made in good faith regarding the misconduct of others,” reads the code of conduct.
But, Mensack tells me, the head of the firm’s 401(k) department threatened him in an e-mail for pursuing these alleged violations. When the matter reached Gary Lynch, the firm’s general counsel at the time and a former chief enforcement officer at the Securities Exchange Commission, his response was “reasonable minds can differ,” Mensack wrote me in an e-mail. The response from a different executive was,“There is no bright line rule addressing this issue.”
After he reported the wrongdoing, Mensack claims, Morgan Stanley “began retaliating against me such that it was impossible for me and my team to conduct ethical and legal 401(k) business” -- in effect, a constructive dismissal.
Not placated and no longer at Morgan Stanley, in March 2010 Mensack filed a whistleblower suit in New Jersey Superior Court against the firm because he believed its 401(k) sales program violated regulations of the SEC, FINRA and the Employee Retirement Income Security Act.
A month later, Morgan Stanley filed a “breach of contract” arbitration claim against Mensack, seeking return of the $750,000 sign-on bonus that the firm had given him as part of a three-year recruiting package to lure him away from his previous employer. Also, since Mensack had been a Wall Street employee, Morgan Stanley argued successfully that the whistleblower case should be moved from the New Jersey court to the FINRA arbitration process.
Mensack’s arbitration proceeding with Morgan Stanley occurred between June 6 and June 9, in Philadelphia, and consisted of seven three-hour recorded sessions. As often happens in a FINRA proceeding, Mensack lost his case. The arbitrators found for Morgan Stanley and ordered him to repay his $750,000 signing bonus plus another $450,000 in Morgan Stanley’s legal fees and FINRA’s fees, or a total of $1.2 million.
In August, Mensack’s attorney requested a video copy of the arbitration hearing in order to review the testimony as part of considering an appeal of the arbitrators’ ruling, which is rarely successful. When Mensack and his attorney reviewed the video, they expected to hear 18 hours of on-the-record testimony. Instead, it contained only 10 hours of testimony. The other eight hours had vanished.
“These eight hours include nearly all of Morgan Stanley’s incriminating testimony,” Mensack wrote me in an e-mail.“Perhaps the most incriminating redacted testimony is from Bill Ryan, Morgan Stanley’s Chief ERISA attorney, when he substantiates my claim that Morgan Stanley’s Alliance Partner 401(k) Sales Program violates the ERISA Prohibited Transaction rules.”