Brokers With Fraud Convictions Keep Morgan Stanley Signing Bonus

This is somewhat reminiscent of the story of the thief who sued the store he broke into for leaving an exposed wire that electrocuted him. In this case, two former brokers convicted of securities fraud won't have to return the $4.45 million signing bonus they received from Morgan Stanley (MS) when they joined the firm three years ago, a Financial Industry Regulatory Authority (FINRA) arbitration board ruled, according to The Wall Street Journal.

The brokers, Eric Butler and Julian Tzolov, each received the signing bonus when they moved from Credit Suisse to Morgan Stanley. The bonuses were received in the form of loans secured by promissory notes, so if the brokers left before the notes expired, they had to pay back the balance, the WSJ explains.

Only a year after they joined Morgan Stanley, the two left when they faced securities fraud, wire fraud and conspiracy charges from their time at Credit Suisse. The charges included misleading clients about the nature of the auction-rate securities they were buying.

Troubling Case

Butler was sentenced to five years in prison in relation to the charges (he's appealing the conviction), and Tzolov awaits sentencing. However, the arbitration board didn't buy Morgan Stanley's claim that the brokers fraudulently induced the company into hiring them and paying them a bonus. FINRA also didn't provide any reasoning for its decision to allow the brokers to keep the bonuses.

There are so many issues here that leave the public wondering, not least the nearly $4.5 million signing bonus, which the WSJ says is customarily equal to twice the revenue the brokers generated over the past year at their prior firm. And keeping a signing bonus despite leaving early -- because of fraud allegations -- is highly disturbing.

However, few will shed tears for Morgan Stanley, which chose to pay such exorbitant bonuses. This case can only reinforce the prevailing image of overwhelming Wall Street greed.