Whistleblower files federal lawsuit against Morgan Stanley, FINRA

A former Morgan Stanley broker who tried to blow the whistle on what he called unethical sales practices, and was later ordered to pay $1.2 million following his departure, is seeking his day in federal court.

Mark Mensack filed a lawsuit against Morgan Stanley and Wall Street's top watchdog in a New Jersey federal district court on Friday, accusing the firm of perjury, among other claims. Mensack also found fault with the industry's arbitration hearing process that resulted in the award against him.

"That needs to be brought to light," Mensack said in an interview on Friday, referring to his claim that Morgan Stanley committed perjury. Mensack said his attorney proved that key evidence was fabricated against him during the hearing.

When Mensack sought to review the testimony of the arbitration hearing in hopes of vacating the award, he found that roughly eight hours of the testimony were "destroyed, never recorded or were otherwise missing and unavailable."

"It's an indication of injustice in the system," said Mensack, who is now seeking a trial by jury.

The lawsuit follows a Financial Industry Regulatory Authority panel decision from August 2011 in which the arbitrators ruled in favor of Morgan Stanley and said that Mensack failed to repay money owed on a sign-on bonus after he left the firm.

A FINRA spokeswoman declined to comment.

Mensack, who worked for Morgan Stanley from August 2008 to November 2009, said he was forced to leave the firm after he discovered an illegal "pay-to-play" scheme involving 401(k) assets that the company administered. He filed a whistleblower suit against the firm in March 2010 in New Jersey Superior Court.

Morgan Stanley one month later filed a "breach of contract" arbitration claim against Mensack, which resulted in the $1.2 million award.

In the 31-page complaint, which included 16 counts and a jury demand, Mensack stated a lengthy list of accusations against Morgan Stanley and FINRA, from ethical violations to impartiality.

Mensack, who was forced to file for bankruptcy, said he suffered "severe emotional and physical distress," as well as financial damage, including the $1.2 million award against him and "extensive" attorneys fees and costs during the proceedings.

Morgan Stanley called Mensack's claims "baseless" and said in a statement that he "had a full opportunity to present (the claims), represented by counsel, in an extensive hearing."

"The arbitration panel gave them fair consideration and rejected them in their entirety," the company said in an emailed statement on Friday. "They correctly concluded that his claims did not excuse his loan obligation, and ordered Mr. Mensack to re-pay it, along with Morgan Stanley's attorneys' fees."

(Editing by Lauren Young and Matthew Lewis)