Morgan Takes Microsoft Stock Dispute to Court

May 19, 2004 ( - The long-simmering dispute between state of Washington regulators and Morgan Stanley over the firm's investment advice to Microsoft Corp. employees has spilled into court.

That’s because Morgan Stanley sued state officials in Thurston County Superior Court in Olympia for withdrawing from a settlement agreement about allegations that brokers gave Microsoft employees bad investment advice in the late 1990s about dealing with their stock options, the Associated Press reported.

The suit asks the court to “affirm and enforce the agreement that the state of Washington entered into with us,” Morgan Stanley spokeswoman Andrea Slattery told reporters. “Suing a regulator is not a step we take lightly, but there are fundamental issues of fairness and good faith to be upheld here.”

In the suit, the investment firm argued that it already had oral and written commitments for the previous agreement, and says it had already begun implementing the terms of the settlement.

Last year, brokers Arun Sardana and Michael Moriarty were accused of talking employees into high-risk strategies that weren’t suitable for their financial needs and wound up costing them hundreds of thousands of dollars.

In November, Deborah Bortner, then the securities administrator for the state of Washington Financial Institutions department, negotiated a settlement that required Morgan Stanley to pay $200,000 and change some practices. But lawyers for the state Attorney General’s Office reviewed the settlement and concluded that some provisions did not provide the state adequate enforcement power (See  WA Regulators Dump Morgan Options Advice Settlement ). Bortner was later demoted, in part because of those settlement negotiations.

Last week, Morgan Stanley rejected a new settlement that added stronger language and was more clearly enforceable.