Ex-Advisor Challenges Morgan Stanley to Reverse FINRA Decision

Christopher Armstrong is contesting a FINRA arbitration ruling that favored Morgan Stanley. The legal action stems from an arbitration initiated by Morgan Stanley in March 2023, aiming to reclaim a portion of a financial penalty previously awarded to Charles Schwab, Armstrong's former employer.

Armstrong, a former representative of Morgan Stanley, has taken legal steps to set aside part of a FINRA arbitration decision that was in the brokerage firm's favor. This arbitration was pursued by Morgan Stanley to recover a portion of a financial sanction previously imposed on Armstrong and owed to Charles Schwab.

The dispute traces back to 2019 when Christopher Armstrong, from New Jersey, and Randall Kiefner, from Florida, announced their departure from Charles Schwab to join Morgan Stanley. Schwab subsequently accused the pair of violating their non-compete agreements by leaving, leading to a FINRA arbitration ruling that ordered Morgan Stanley and the advisors to pay over $7 million in penalties.

Subsequently, Morgan Stanley sought legal recourse against Armstrong and Kiefner to recover their share of the fine, during which Kiefner was convicted and imprisoned on unrelated charges of possessing child pornography.

Schwab's 2019 lawsuit alleged that Armstrong and Kiefner breached their contractual duties almost immediately upon their transfer to Morgan Stanley by attempting to poach Schwab's clients. Schwab presented evidence suggesting Kiefner had prepared for his exit by printing his client list multiple times, while Armstrong was accused of reviewing numerous client profiles in preparation for their solicitation.

Despite these allegations, Armstrong and Kiefner contended that Morgan Stanley's management had assured them that their non-compete clauses would not lead to legal challenges and had even promised legal support, which they later withdrew. This led to their termination by Morgan Stanley and the subsequent revocation of their legal representation by the firm-recommended law firm.

Federal judges quickly imposed a restraining order against Armstrong and Kiefner, preventing them from soliciting Schwab's clients, following which Schwab pursued further legal action against both advisors and Morgan Stanley in FINRA arbitration. This resulted in a significant financial penalty against Morgan Stanley, including over $3.07 million in punitive damages, with the advisors also ordered to pay compensatory damages and legal fees.

Despite the panel's decision, Morgan Stanley later filed a lawsuit against the advisors to recover the damages and court fees it had paid, totaling over $4 million, arguing that the advisors were selectively adhering to the arbitration award's favorable parts while disregarding their financial obligations. A subsequent FINRA panel sided with Morgan Stanley, ordering Armstrong and Kiefner to contribute their share of the original penalties to Morgan Stanley.

Meanwhile, Kiefner faced legal issues beyond the financial dispute, with his arrest and conviction for child pornography charges in 2021 following an alert from Yahoo to law enforcement authorities.

In his latest legal move, Armstrong seeks to challenge Morgan Stanley's demand for payment in a New Jersey federal court, arguing that the firm lacks the precedent to enforce such a demand and suggesting that the advisors are not solely responsible for the penalties. Armstrong aims to recover over $2 million from Morgan Stanley in this ongoing legal battle. His legal representation did not respond to requests for comment.


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