Two Morgan Stanley units must pay $8 million to a former energy trader, who said the firms improperly terminated him for cause, after he declined to meet with New York law enforcement authorities during an investigation, arbitrators ruled.
The 2-to-1 ruling in favor of Amit Gupta effectively restores millions of dollars in deferred compensation that he was forced to forfeit because of the termination. The ruling was posted on the Financial Industry Regulatory Authority's website on Tuesday.
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Arbitrators ruled that Gupta's termination for cause by Morgan Stanley & Co Inc and Morgan Stanley Capital Group Inc was invalid, according to the decision, dated August 29. A termination "for cause" occurs when an employer fires an employee for a specific reason, often one that stems from a violation of company policy or an employment contract, lawyers said.
Authorities later closed the investigation, allegedly involving a "large trade" without bringing charges against Gupta. Other details about the alleged trade and investigation are unclear.
A spokesman for Morgan Stanley said the firm was disappointed by the ruling.
A spokeswoman for the regulator said it was the first ruling made through FINRA's large arbitration pilot program, which is available to parties with $10 million or more in claims.
FINRA, Wall Street's industry-funded watchdog, runs the arbitration forum that hears many legal disputes involving firms, their employees and customers.
The pilot program allows parties to customize their arbitrations through arrangement such as agreeing to choose arbitrators who may not be listed on FINRA's roster, or developing their own procedures for exchanging information prior to the hearing.
Gupta filed the claim in 2011 seeking more than $14 million in damages. His lawyer, Eric Seiler, declined further comment.
Morgan Stanley terminated Gupta for cause in 2009 after he declined to attend a meeting with the district attorney of New York County in Manhattan. The firm said his action violated its code of conduct, according to the ruling.
Two of the three arbitrators who heard the case found the firm's decision was "flawed," given Gupta's "many months" of cooperation with Morgan Stanley, as well as the Commodity Futures Trading Commission and Manhattan prosecutors, according to the ruling.
A third arbitrator dissented writing that Gupta disregarded the "clear terms" of his employment contract.
(Reporting by Suzanne Barlyn, editing by Lauren Young)