Whistleblower Taken to the Woodshed by FINRA

Econintersect:  Mark Mensack has been severely penalized in an arbitration decision by FINRA (Financial Industry Regulatory Authority).  From August 2008 to November 2009 he was First Vice President, Financial Advisor for Morgan Stanley according to his LinkedIn profile.  Before that he had held a number of other positions as a financial advisor at several top firms.   He is recognized as a fiduciary expert and has his own consultancy business on the subject.  (See Caveat Emptor.)

However, Mark Mensack has filed for personal bankruptcy.  And that leads to a story of a whistleblower cut off at the pass.  On August 2, 2011 Reuters reported that FINRA had ruled in an arbitration hearing that Mensack owed Morgan Stanley $1.2 million: return of $825,660 from a signing bonus of $873,000 received when he joined the firm plus interest and legal expenses.
(Caption illustration from Sense on Cents.)

According to an article by Al Lewis of Dow Jones that appeared in eFXNews:

Mark Mensack joined Morgan Stanley (MS) in 2008, landing an $873,000 signing bonus, but now he’s in personal bankruptcy and just moments away from losing his home in Cherry Hill, N.J.

He’s turning 50. He’s got a wife and three kids. And this is where he’s landed after losing an arbitration with his former employer before his industry’s self-regulating body, the Financial Industry Regulatory Authority.

Mensack claimed he was forced to leave Morgan Stanley after he accused the firm of taking hidden fees from its retirement-account customers. In July, a Finra panel ruled against this would-be whistleblower and ordered him to pay Morgan Stanley $1.2 million, essentially demanding most of his bonus back after quitting, plus interest and legal fees.

Not surprisingly, Mensack is planning on filing an appeal, even though arbitration rulings from FINRA are very seldom overturned. One of the reasons that Mensack feels the case was not handled correctly is that he had petitioned for the case to be tried in court, rather than in arbitration.  Here is more from Al Lewis:

Mensack wanted to prosecute his case in a New Jersey state court, where he initially filed a whistleblower’s lawsuit. But Morgan Stanley attorneys successfully argued in 2010 that his claims should be heard before Finra–an industry friendly body that sometimes displays little regard for evidence.

Now comes the coup d’gras.  The recorded testimony that FINRA is required to keep for all hearings has 8 hours of the 18 hour total mysteriously missing.  FINRA has a history of altering records to their advantage.  One such case resulted in SEC (Securities and Exchange Commission) sanction of the organization reported in GEI News last November.

Financial services industry professional Larry Doyle was outraged on his blog Sense on Cents:

If there is supposed to be a whiff of justice and fair dealing in our nation, then each and every plaintiff is entitled to a fair hearing and a full record of testimony.

The fact that FINRA cannot and did not provide the full testimony of his hearing to Mr. Mensack renders the FINRA arbitration process as nothing more than a kangaroo court.

Richard Ketchum and his cronies at FINRA can talk all they want about progress on the financial regulatory front.

If they want to have a scintilla of credibility with the American public then they should go back and rehear Mr. Mensack’s case AND this time make sure that ALL of the testimony is properly recorded and provided for all the parties involved.

Editor’s Comments: I would go a step further than Larry Doyle and recommend that Mensack file suit for reversal of an unjust arbitration process with the record of same obscured through loss of records.  His standing in this matter could have been improved if he had been fired by Morgan Stanley, but it has been reported that he was forced to leave.  This may indicate that he resigned under some sort of pressure.  Under the whistleblower protection law established when the Dodd-Frank Act was signed into law on July 21, 2010, Mensack would have had specific protection against retaliation from his employer.  Unfortunately, Dodd-Frank was enacted eight months after Mensack left Morgan Stanley.

The burying of fees in fine print is common practice in retail financial products and services and the rules for full disclosure to clients by registered representatives of brokerage firms is not enforced effectively.  Some disclose fees and charges and some don’t.  If there was systematic lack of disclosure by Morgan Stanley reps which was the subject of Mensack’s complaint, that would be something that would be very damaging to the firm and the industry to have brought to light.  Across the industry there would be billions of dollars at stake if this was all dug out of the fine print.

Disclosure: The GEI Managing Editor has worked for twenty years in the financial services industry, 10 years as a Series 6, 7 and 63 registered representative of a NASD broker-dealer and, more recently, 10 years as a fee-only Certified Financial Planner ®. The NASD (National Association of Security Dealers) was the predecessor SRO to FINRA. This experience does influence the way the editor looks at FINRA related news. It is the editor’s opinion that FINRA has a primary responsibility to protect its members from the misdeeds of individual member firms and individual representatives, and has only a secondary interest in protecting the public.

Note: The Wikipedia entry for FINRA was apparently entered by FINRA itself and carries a warning that the neutrality of the entry has been disputed.

John Lounsbury

Sources:

Broker Bankrupted in Kangaroo Court (Al Lewis, eFXNews from Dow Jones, 13 March 2012)

• Update 1 – Broker ordered to repay Morgan Stanley $1.2 mln (Reuters, 02 August 2012)

• Caveat Emptor (Mark Mensack, Discussion of obscure 401(k) plan fees, undated document)

• 401(k) rip-offs:  How to protect yourself (John Wasik, Reuters, 13 June 2011)

• How Does FINRA Lose 8 Hours of Testimony?  Wall Street’s” Kangaroo Court” (Larry Doyle, Sense on Cents, 13 March 2012)

• SEC Sanctions FINRA (GEI News, 02 November 2011)

• Whistleblower Provisions of the Dodd-Frank Act (R.Scott Oswald and Jason Zuckerman, The Employment Law Group, 20 July 2012)

Hat tip to Russell Huntley.