A federal judge has shot down Morgan Stanley's attempt to dismiss a case brought by two former employees seeking $20 million in damages who alleged that they were terminated after calling attention to extensive misconduct at the firm.

The case turns on a series of allegations from Jaime Feldman-Boland and James Boland, a married couple who say that they were fired after reporting a series of improper practices including unlicensed employees executing trades and promising customers unrealistic returns on risky mutual funds, among others. The couple allege that Morgan’s firing violated the whistleblower protections granted under the Sarbanes-Oxley Act and the Dodd-Frank Act.

(Bloomberg News)
(Bloomberg News)

Morgan Stanley has disputed the charges, and sought to have the case dismissed. Last week, Judge William Pauley III of the U.S. District Court in New York's Southern District denied Morgan's motion to dismiss the case in the main, while granting the narrower dismissal of the claims brought against the plaintiffs' former supervisor under the Sarbanes-Oxley Act.

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"We're pleased with the decision, we look forward to litigating the claims, proving them," says Alice Jump, the lead attorney for the plaintiffs and a partner at the New York law firm Reavis Parent Lehrer LLP. "We're definitely going forward."

Another attorney with Reavis Parent Lehrer who has been working on the case in a supporting role also hailed the judge's move to reject Morgan's motion to dismiss.

"The decision in a way cleared the path for virtually all the claims that were asserted," says the attorney, who spoke on condition of anonymity as he is not leading the case.

Apart from the civil action, Feldman-Boland and Boland had filed complaints alleging wrongful termination with a municipal agency in New York City. That commission found that the couple had been fired for "legitimate non-discriminatory reasons," rather than the "discrimination or retaliation" that they alleged, and Morgan had argued that that determination constituted grounds for dismissing the civil litigation.

Judge Pauley was unconvinced, concluding that the two cases involved different sets of claims and standards of proof. Pauley did determine that the plaintiffs had failed to pursue every administrative action they could against their former supervisor, David Turetzky, dismissing the Sarbanes-Oxley claims against him while allowing the bulk of the complaint to proceed.

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A spokeswoman for Morgan Stanley provided a statement from the firm:

"While it's disappointing that the earlier determination of the New York City Commission on Human Rights that the plaintiffs were terminated for legitimate reasons doesn't prevent them from re-litigating the issue, we remain confident that this matter will ultimately result in the same conclusion, and are pleased that the court has dismissed some of the claims as improper."

Feldman-Boland alleges that the senior adviser with whom she was paired would ignore the prospective clients that she tried to bring on, resulting in her falling short of her production goals. Her efforts to escalate the issue were rebuffed, and she alleges that the firm rejected a $200 million commodities deal that she had been trying to orchestrate. She further charges that the senior adviser she worked with created a hostile work environment that included physical threats and verbal abuse.

Ultimately, Morgan fired Feldman-Boland and, later, her husband.

The complaint details a litany of compliance issues and violations of securities and fraud laws, including firm employees altering clients' risk profiles to accommodate riskier investments and lax branch office supervision.

The case now heads into the pretrial discovery phase.