In a recent ruling, New York Southern District Court Judge Paul Gardehpe denied Morgan Stanley’s motion to reconsider a November 2023 ruling which stated that the firm’s deferred compensation plan should be governed by federal laws.
This decision by Judge Gardehpe is just the latest development in a years-long class action suit filed by a host of former Morgan Stanley advisers. The underlying lawsuit was originally filed in 2020 and led by Matthew T. Shafer, an industry veteran with more than two decades of experience. In the lawsuit, Shafer alleges that Morgan Stanley violated federal laws by withholding deferred pay when he and other advisers left the company. According to Shafer, Morgan Stanley invoked a “Cancellation Rule,” denying him around $500,000 in deferred compensation when he moved to a competing firm in 2018.
Last year, Judge Gardehpe determined that Morgan Stanley’s deferred compensation programs for financial advisers are subject to the Employee Retirement Income Security Act of 1974. However, Morgan Stanley, in an unusual move, filed a “motion for reconsideration and/or clarification,” which Gardehpe denied.
While the crux of the dispute seems to lie in whether or not the deferred compensation plans fall under “bonus plans” or “pension plans,” the court found that the firm’s deferred compensation plan is “not consistent with a bonus plan,” and is instead “a portion of their incentive compensation, which in turn is a fraction of the revenue they generate.”
Morgan Stanley has stated that it plans to appeal the ruling.
Shafer started his career with UBS Financial Services from 1997 to 2009 before moving to Citigroup Global Markets in 2009 and then Morgan Stanley, where he worked for approximately nine years. Since 2018, Shafer has been registered with Raymond James and Associates.
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