Standing: Stefan M. Apotheker and Michael Rapaport. Sitting: Jeffrey R. Sonn and Jeffrey Erez
Standing: Stefan M. Apotheker and Michael Rapaport. Sitting: Jeffrey R. Sonn and Jeffrey Erez (AM Holt)

Details: The Canasi family of Mexico sold property they inherited, and five family members were the beneficiaries of the trust set up by Banco Nacional de Mexico, or Banamex, to distribute the proceeds. One relative also received proceeds outside the trust.

The accounts were managed by Morgan Stanley and held by the broker’s Swiss affiliate, Bank Morgan Stanley.

Case: Banco Nacional de Mexico Institucion de Banca Multiple, Fiduciary Division v. Morgan Stanley

Case no: 12-01019

Description: Securities

Filing date: March 16, 2012

Hearing dates: July 21-30, 2014

Arbitration panel: James Geiger (presiding chair), Paul J. Burkhart and Harris Gally

Plaintiffs attorneys: Jeffrey Erez, Jeffrey Sonn, Michael Rapaport and Stefan Apotheker, Sonn & Erez, Miami

Defense attorneys: Joe Coates, Alex Rosenthal and Jon Jacobson, Greenberg Traurig, West Palm Beach

Arbitration award: $4.5 million

The arbitration filing claimed a Bank Morgan Stanley broker, Jose Fernando Canasi, made loans of $5.2 million to a relative without Banamex’s required authorization, in effect “cross-pledging” the funds.

The family member noticed a steep decline in his accounts in 2009 but did not discover Morgan Stanley’s actions until three years later during discovery in a separate case.

Banamex filed a statement of claim with the Financial Industry Regulatory Authority against Morgan Stanley, alleging breach of fiduciary duty, negligence, negligent supervision, conversion, fraud and tortious interference with a contract. All broker securities cases are governed by FINRA.

After settlement discussions broke down, a FINRA panel convened July 21 in Miami to decide the case. When the hearing concluded July 30, plaintiffs requested $5.2 million in compensatory damages plus punitive damages and attorney fees.

Plaintiffs case: The plaintiffs introduced thousands of documents into evidence. Seven witnesses testified for the plaintiffs, including current and former Morgan Stanley sales assistants, a manager and a broker, as well as a Banamex representative and a family member. The family member, who was not named in the report, testified Morgan Stanley backdated a document used to record the cross-pledge to make it appear it was signed by Banamex when the account was opened, according to Erez.

Defense case: Greenberg Traurig declined comment.

Erez said the broker’s partner, manager and assistants all testified, denying any wrongdoing by Morgan Stanley. The broker—who was a Canasi family cousin—did not testify, as he had left Morgan Stanley years ago and moved to Mexico. Defense also argued vehemently that the case did not belong in a FINRA arbitration but rather in Switzerland, where Bank Morgan Stanley is based.

Outcome: In the decision, the arbitration panel found Morgan Stanley liable for negligence and negligent supervision and ordered the brokerage to pay Banamex $4.5 million in damages. Attorney fees and punitive damages were denied.

Comments: “We’re pleased with the outcome,” Erez said. “This is the largest award we’ve ever received in a FINRA arbitration on a single case. In the realm of FINRA arbitration, a $4.5 million award is exceedingly rare.”

Post-award: The defense has not filed a motion to vacate the award and is expected to pay the award, Erez said. He has filed a motion to confirm the award in the Southern District of Florida.