According to the U.S. District Court for the Central District of California, federal law preempts would-be class claims accusing Morgan Stanley Smith Barney LLC of having insider trading detection and deterrent policies that are illegal under California labor and unfair competition statutes. The court says that “conflict preemption” precludes the claims and that letting the plaintiffs move forward with them would create an obstacle to Congress’ objectives in enacting federal securities laws.
Per the court, Morgan Stanley set up employee trading policies to prevent and monitor insider trading. Under the ETPs, employees who had certain kinds of brokerage accounts had to either keep them in-house or disclose and get approval for the accounts to be housed at another firm. However, in 2008, because of possible “state law implications” regarding its policy, Morgan Stanley put into practice granting California employees that asked for an exeption approval as long as they gave the financial firm duplicate brokerage account confirmations and statements.
The plaintiffs of this lawsuit, who are all ex-Morgan Stanley employees, contended that under California labor statute, the firm’s policy was unlawful. Morgan Stanley’s lawyer responded by arguing that federal law preempts the plaintiffs’ claims.
The plaintiffs intend to bring their case to the U.S. Court of Appeals for the Ninth Circuit. Their lead lawyer has said that the brokerage firm’s plan forced the securities traders to pay “huge fees for their own advice.”
Related Web Resources:
Calif. Challenge to Morgan Insider Policy Falters on Grounds of Conflict Preemption, BNA Broker/Dealer Compliance Report, June 1, 2011
Marcia Bloemendaal, et al v. Morgan Stanley Smith Barney, Justia, June 14, 2011
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MBIA Can Sue Morgan Stanley Over Alleged Misrepresentation of MBS Risks, Says US New York Supreme Court, Institutional Investor Securities Blog, June 14, 2011
Morgan Stanley & Co. and TD Ameritrade Inc. to Repurchase Over $338M in Auction Rate Securities from New Jersey Investors, Institutional Investor Securities Blog, May 4, 2011
Ex-Morgan Stanley Trader to Settle SEC Unauthorized Swaps Trading Claims for $150,000, Stockbroker Fraud Blog, June 13, 2011
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