Morgan Stanley’s Motion to Bar Ex-Hedge Fund Promoter Conrad Seghers from Pursuing FINRA Arbitration in Texas Securities Case is Granted by District Court

A district court has granted plaintiff Morgan Stanley’s motion that Conrad Seghers, a former hedge fund promoter, be preliminarily barred from pursuing Financial Industry Regulatory Authority arbitration proceeding against the broker-dealer over the way over his accounts were allegedly mishandled. Judge Denise L. Cote said that Seghers waved the right to arbitrate by proceeding with his Texas securities lawsuit when he litigated with earlier action. The dispute between the investment bank and Seghers has been going on for nearly a decade.

According to the court, a number of hedge funds and related entities run by Seghers and his associates opened accounts with Morgan Stanley in 1999. In 2001, Seghers and his partners accused the broker-dealer of serious errors that allegedly caused the funds’ value to sustain huge financial hits. A major investor in a Segher hedge fund would go on to file a Texas securities fraud complaint against the fund promoter, the funds, and his partners.

The following year, a number of the funds sued Morgan Stanley in court. The Texas securities dispute went to NASD (now FINRA) arbitration and the case was eventually settled.

When Seghers sued Morgan Stanley for $35 million in federal court over the investment bank’s allegedly fraudulent misstatements that led to the funds to drop in value, the lawsuit was dismissed as untimely under the Texas limitations period of four years. Seghers chose not to appeal the ruling.

However, not long after, one of the funds founded by Seghers that had traded assets through the Morgan Stanley accounts filed NASD arbitration proceedings accusing the investment bank of breach of contract and fraud related to the same alleged misconduct as the federal district court action. A court in New York dismissed the case as untimely.

This April, Seghers commenced a FINRA arbitration against Morgan Stanley. In July, the investment bank filed a complaint seeking declaratory judgment that the hedge fund promoter waived his right to arbitrate because of his earlier lawsuit, as well as due to the fact that the Texas arbitration was time-barred. The court granted Morgan Stanley’s motion.

Related Web Resources:
Arbitration and Mediation, FINRA
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