by Brian Mahany
Morgan Stanley has not enjoyed much good ink these days. Like the other big Wall Street banks, Morgan Stanley has been battered in the press and by regulators. Last year the bank paid $32 million to the SEC to settle insider trading charges perpetrated by one of its traders, Joseph “Skip” Skowron. Later that year Skowron plead guilty to related criminal charges and we thought that particular scandal was over. Until now.
Two weeks ago Morgan Stanley filed suit against Skowron seeking to recoup the money it paid to the SEC because of Skowron’s criminal behavior. According to the complaint, the bank accuses Skowron of being a “faithless servant.”
The faithless servant doctrine isn’t exactly a household term, even among lawyers. As banks and mortgage companies pay record fines, however, we may see more such complaints. Whether employers can win and collect, however, remains to be seen.
To sue a former employee for losses he or she incurred, the employer must first prove that the employee had a duty of loyalty and fidelity and was required to exercise a high level of care in their duties. Generally, faithless servant cases are brought against executives and senior level employees. In this case, Skowron ran a hedge fund for the bank.
Morgan Stanley says that Skowron engaged in insider trading that ultimately cost the bank tens of millions in fines. The bank also paid Skowron’s legal fees as well. By engaging in criminal conduct, the bank claims he beached his duty of loyalty to the company. They say he also lied about his behavior and attempted to cover it up.
Suits to recover attorneys fees are quite common. Frequently employment contracts for executives contain a claw back provision that allows the employer to be reimbursed for legal fees if the employee is convicted of a crime. There is extremely little precedent for trying to get back fines paid by the employer.
Although we are not a fan of the big Wall Street investment bankers, we do admire Morgan Stanley for going after former employees who broke the law. Perhaps this case will send a message to executives that there are consequences for their misdeeds. While a $32 million fine sounds like a lot of money, it is nothing to a company the size of Morgan Stanley. Many big banks simply look at these fines as a cost of doing business.
If Morgan Stanley wins, traders, fund managers and executives might think twice before engaging in fraud.
The fraud recovery lawyers at Mahany & Ertl help victims of fraud get back their hard earned money. Whether you are a business or an individual, if you lost money to a fraud or a dishonest employee, give us a call. Often we can accept cases on a contingent fee or hybrid basis meaning no legal fees unless we recover your money.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and Minneapolis, Minnesota. Services available in many jurisdictions.