Morgan Stanley Fine

Award

FINRA Dispute Resolution In the Matter of the Arbitration Between: Claimants Lon Lutz, M.D., Rahul Vohra, M.D. and Sherry Vohra, Joint Tenants, Barbara Carter Summers, Jeff Summers, M.D., and Michael Winkelmann, M.D.

Case Number: 12-02257

vs.

Respondents Morgan Stanley & Co., Inc. Morgan Stanley Smith Barney, LLC Steven Mark Wyatt Hilary Joseph Zimmerman Fred Eugene Brister III

Hearing Site: Jackson, Mississippi

Nature of the Dispute: Customers vs. Members and Associated Persons

This case was decided by a majority-public panel.

REPRESENTATION OF PARTIES For Claimants Lon Lutz, M.D., Rahul Vohra, M.D. and Sherry Vohra, Joint Tenants, (the “Vohras”), Barbara Carter Summers, Jeff Summers, M.D., (collectively referred to as the “Summers”), and Michael Winkelmann, M.D.: Judson M. Lee, Esq., Judson M. Lee, PLLC, Madison, Mississippi, Joseph C. Peiffer, Esq., Peiffer Rosca Wolf Abdullah Carr & Kane LLP, New Orleans, Louisiana, and Frank "Kim" Breese, III, Esq., Breese Law Office, PLLC, Ridgeland, Mississippi. For Respondents Morgan Stanley & Co., Inc. (“Morgan Stanley”), Morgan Stanley Smith Barney, LLC (“MSSB”), Hilary Joseph Zimmerman (“Zimmerman”), and Fred Eugene Brister III (“Brister”), hereinafter collectively referred to as “Morgan Stanley Respondents”: Joseph C. Coates, III, Esq. and Alex J. Rosenthal, Esq., Greenberg Traurig, P.A., West Palm Beach, Florida. For Respondent Steven Mark Wyatt (“Wyatt”): George C. Freeman, III, Esq., Barrasso Usdin Kupperman Freeman & Sarver, L.L.C., New Orleans, Louisiana.

CASE INFORMATION Statement of Claim filed on or about: June 14, 2012. Lon Lutz, M.D. signed the Submission Agreement: May 12, 2012. The Vohras signed the Submission Agreement: May 29, 2012. Barbara Carter Summers signed the Submission Agreement: June 7, 2012.

FINRA Dispute Resolution Arbitration No. 12-02257 Award of 9

Jeff Summers, M.D. signed the Submission Agreement: June 7, 2012. Michael Winkelmann, M.D. signed the Submission Agreement: June 7, 2012. Statement of Answer filed by the Morgan Stanley Respondents on or about: August 31, 2012. Respondent Morgan Stanley signed the Submission Agreement: September 6, 2012. Respondent MSSB signed the Submission Agreement: September 5, 2012. Respondent Zimmerman signed the Submission Agreement: September 6, 2012. Respondent Brister signed the Submission Agreement: September 7, 2012. Statement of Answer filed by Respondent Wyatt on or about: September 19, 2012. Respondent Wyatt did not sign the Submission Agreement. Motion Regarding Claimants’ Expert Witness filed by Respondents Morgan Stanley, MSSB and Brister on or about: February 6, 2015. Response to Respondents Morgan Stanley, MSSB and Brister’s Motion Regarding Claimants’ Expert Witness filed by Claimants on or about: February 18, 2015.

CASE SUMMARY In the Statement of Claim, Claimants asserted the following causes of action: violations of FINRA rules on suitability; unauthorized trading; use of manipulative, deceptive or other fraudulent device or contrivance; lack of fair dealing; churning; failure to uphold the standards of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade); violation of all FINRA rules and industry requirements for supervision; violation of SEC Rule 10b-5 regarding use of manipulative and deceptive practices; violation of Miss. Code Ann. § 75-71-501 (2015) et seq. regarding general fraud; violation of the Investment Advisers Act of 1940 and rules regarding common law negligence and fraud, including negligent and fraudulent inducement; and violation of all industry, statutory and common law rules regarding fiduciary duties. The causes of action relate to Respondents’ alleged mismanagement of Claimants’ numerous accounts and the purchase of stocks, including, but not limited to: E*Trade, Oculus Innovative Sciences Inc., ProShares Ultra ETFs, Daktroniks, Novatel, Research in Motion, Valence Technology, Tri-Tech Holding, Inc., Morris, Lazy Boy, Legend International and Southern Financial Group. Unless specifically admitted in their Answer, the Morgan Stanley Respondents denied the allegations made in the Statement of Claim and asserted various affirmative defenses. Unless specifically admitted in his Answer, Respondent Wyatt denied the allegations made in the Statement of Claim and asserted various affirmative defenses.

RELIEF REQUESTED

In the Statement of Claim, Claimants requested: full rescission; minimum compensatory damages as follows: Lon Lutz, M.D. – $154,000.00, the Vohras – $193,000.00 on their 1st account and $188,334.00 on their 2nd account, Barbara Carter Summers – $3,148,812.00, the Summers – unspecified amount, and Michael Winkelmann, M.D. – $745,467.00; interest on Claimants’ compensatory damage amounts; punitive damages;


attorneys’ fees; and costs. At the close of Claimants’ case-in-chief, Claimants submitted an Affidavit of Costs in the total amount of $91,513.30. Claimants also submitted a fee statement for expert witness fees in the total amount of $104,444.00. In their Statement of Answer, the Morgan Stanley Respondents requested: dismissal of Claimants’ Statement of Claim in its entirety with prejudice; an assessment of all forum costs against Claimants; expungement of all references to this matter from Respondents Zimmerman’s and Brister’s Central Registration Depository (“CRD”) records; and such other and further relief as the Panel deemed just and appropriate. In his Statement of Answer, Respondent Wyatt requested: dismissal of Claimants’ Statement of Claim in its entirety with prejudice; an assessment of all forum fees against Claimants; and expungement of all references to this matter from his CRD record.

OTHER ISSUES CONSIDERED AND DECIDED The Arbitrators acknowledge that they have each read the pleadings and other materials filed by the parties.

Respondent Wyatt did not file with FINRA Dispute Resolution a properly executed Submission Agreement but is required to submit to arbitration pursuant to the Code of Arbitration Procedure (the “Code”) and, having answered the claim, appeared and testified at the hearing, is bound by the determination of the Panel on all issues submitted.

On October 22, 2014, Claimants filed with FINRA Dispute Resolution a notice of dismissal with prejudice of their claims against Respondent Wyatt. Therefore, the Panel made no determination with respect to any of the claims asserted against Respondent Wyatt in the Statement of Claim.

On October 28, 2014, Claimants filed with FINRA Dispute Resolution a notice of dismissal with prejudice of their claims against Respondent Zimmerman. Therefore, the Panel made no determination with respect to any of the claims asserted against Respondent Zimmerman in the Statement of Claim. Although present as a witness during the evidentiary hearings, Respondent Zimmerman did not pursue his request for expungement of all references to this matter from his CRD record, as previously requested in the Morgan Stanley Respondents’ Statement of Answer. Accordingly, the Panel made no determination with respect to Respondent Zimmerman’s expungement request.

At the outset of the November 2014 evidentiary hearings, Respondent Wyatt made a verbal Motion to Intervene for the purpose of requesting expungement of all references to this matter from his CRD record. Neither Claimants, nor the remaining Respondents objected. The Panel granted Respondent Wyatt’s Motion to Intervene.

On or about February 6, 2015, Respondents Morgan Stanley, MSSB and Brister filed a Motion Regarding Claimants’ Expert Witness. During the December 2014 evidentiary


hearings, the Panel had denied Respondents Morgan Stanley, MSSB and Brister’s objection to allow Claimants’ expert witness to testify. The objection was raised based on the expert’s prospective employment with the State of Mississippi in conducting an investigation of the branch office at issue in this case. In their Motion, Respondents Morgan Stanley, MSSB and Brister asserted that Claimants’ expert witness should not testify in this arbitration for the following reasons: he could be influenced by the documents and information he would review for the State of Mississippi; his retention in this arbitration might violate Mississippi’s Ethics in Government laws; and he would have a conflict of interest. Claimants responded that their expert witness could testify for the following reasons: he is not prohibited from testifying in this case simply because he would be reviewing documents and information received from the State of Mississippi; his retention does not violate Mississippi’s Ethics in Government laws; and there is no conflict of interest. After hearing the parties’ oral argument during the February 2015 evidentiary hearings, the Panel denied the Motion and ruled that Claimants’ expert witness could testify in this matter without conflict.

After the close of Claimants’ case-in-chief, Respondents Morgan Stanley, MSSB and Brister made an ore tenus Motion to Dismiss all of Claimants’ claims, except for Claimants’ claim for failure to supervise. Respondents argued that Claimants failed to meet their burden of proof. Claimants objected stating that they provided sufficient evidence to establish their case, and that the case should not be dismissed. After hearing the parties’ oral argument, the Panel denied the Motion to Dismiss.

During closing arguments, Claimants requested leave to amend their Statement of Claim to include an additional $100,000.00 in compensatory damages associated with a “private placement” loss incurred by Claimant Jeff Summers, M.D. Respondents Morgan Stanley, MSSB and Brister objected on the grounds that no evidence or prior argument was presented on this issue. The Panel considered the arguments of counsel and granted the objection, which eliminated any consideration of this particular claim.

The parties have agreed that the Award in this matter may be executed in counterpart copies or that a handwritten, signed Award may be entered.

AWARD After considering the pleadings, the testimony and evidence presented at the recorded in-person evidentiary hearings, and the post-hearing submissions, the Panel has decided in full and final resolution of the issues submitted for determination as follows:

1. Respondents Morgan Stanley, MSSB and Brister, jointly and severally, are liable

and shall pay to Claimants compensatory damages in these specific amounts: a. Lon Lutz, M.D. - $83,900.00 b. The Vohras - $205,895.00 c. The Summers - $967,772.00 d. Michael Winkelmann, M.D. - $265,411.00

2. Pursuant to Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52 (1995), United States use of Control Sys. v. Arundel Corp., 814 F.2d 193 (5th Cir. 1987), and Miss.


Code Ann. § 11-1-65 (2015), Respondents Morgan Stanley, MSSB and Fred Brister, jointly and severally, are liable and shall pay to Claimants punitive damages in these specific amounts: a. Lon Lutz, M.D. - $8,000.00 b. The Vohras - $20,000.00 c. The Summers - $50,000.00 d. Michael Winkelmann, M.D. - $26,000.00

3. Pursuant to Miss. Code Ann. § 75-71-509(f) (2015) and Mississippi state law, which

authorize an award of attorneys’ fees upon a finding of punitive damages, Respondents Morgan Stanley, MSSB and Brister, jointly and severally, are liable and shall pay to Claimants attorneys’ fees in these specific amounts: a. Lon Lutz, M.D. - $33,560.00 b. The Vohras - $82,358.00 c. The Summers - $387,108.00 d. Michael Winkelmann, M.D. - $106,164.00

4. Respondents Morgan Stanley, MSSB and Brister, jointly and severally, are liable

and shall reimburse Claimants, collectively, for costs in the amount of $68,350.00.

5. Respondents Morgan Stanley, MSSB and Brister, jointly and severally, are liable and shall reimburse Claimants, collectively, expert witness fees in the total amount of $78,333.00.

6. Pursuant to Miss. Code Ann. § 75-17-1 (2015), Respondents Morgan Stanley, MSSB and Brister, jointly and severally, are liable and shall pay to Claimants, collectively, interest as follows:

a. Pre-award interest on the awarded compensatory damages from July 13, 2012, until the date of this Award at the rate of 2.5% per annum; and

b. Post-award interest on the total amounts of awarded compensatory damages, pre-award interest, punitive damages, attorneys’ fees, and costs from the date of this Award until the Award is satisfied at the rate of 4.5% per annum.

7. Respondent Brister’s request for expungement of all references to this matter from

his CRD record is denied.

8. Respondent Wyatt’s request for expungement of all references to this matter from his CRD record is denied.

9. Any and all relief not specifically addressed herein is denied.

FEES Pursuant to the Code, the following fees are assessed:


Filing Fees FINRA Dispute Resolution assessed a filing fee* for each claim:

Initial Claim Filing Fee =$ 1,800.00 *The filing fee is made up of a non-refundable and a refundable portion. Member Fees Member fees are assessed to each member firm that is a party in these proceedings or to the member firm(s) that employed the associated person(s) at the time of the event(s) giving rise to the dispute. Accordingly, as parties, Respondents Morgan Stanley and MSSB are assessed the following: For Morgan Stanley:

Member Surcharge =$ 2,800.00 Pre-Hearing Processing Fee =$ 750.00 Hearing Processing Fee =$ 5,000.00

For MSSB:

Member Surcharge

=$ 2,800.00

Pre-Hearing Processing Fee =$ 750.00 Hearing Processing Fee =$ 5,000.00

Adjournment Fees Adjournments granted during these proceedings for which fees were assessed: December 9-13 and 16-20, 2013, joint adjournment by the parties =$ 1,200.00 March 27, 2015, joint adjournment by the parties = WAIVED _____________________________________________________________________ Total Adjournment Fees =$ 1,200.00 The Panel has assessed $600.00 of the adjournment fees to Claimants, jointly and severally. The Panel has assessed $600.00 of the adjournment fees to Respondents Morgan Stanley, MSSB and Brister, jointly and severally. Three-Day Cancellation Fees Fees apply when a hearing on the merits is postponed or settled within three business days before the start of a scheduled hearing session: March 27, 2015, joint adjournment by the parties = WAIVED Discovery-Related Motion Fees Fees apply for each decision rendered on a discovery-related motion. Three (3) Decisions on discovery-related motions on the papers


with one (1) arbitrator @ $200.00/decision =$ 600.00 Respondent submitted three (3) discovery-related motions Total Discovery-Related Motion Fees =$ 600.00 The Panel has assessed $300.00 of the discovery-related motion fees to Claimants, jointly and severally. The Panel has assessed $300.00 of the discovery-related motion fees to Respondents Morgan Stanley, MSSB and Brister, jointly and severally. Hearing Session Fees and Assessments The Panel has assessed hearing session fees for each session conducted. A session is any meeting between the parties and the arbitrator(s), including a pre-hearing conference with the arbitrator(s), that lasts four (4) hours or less. Fees associated with these proceedings are: Four (4) Pre-hearing sessions with a single arbitrator @ $450.00/session =$ 1,800.00 Pre-hearing conferences: December 12, 2013 1 session March 13, 2014 1 session April 29, 2014 1 session October 13, 2014 1 session Five (5) Pre-hearing sessions with the Panel @ $1,200.00/session =$ 6,000.00 Pre-hearing conferences: December 11, 2012 1 session January 16, 2015 1 session January 22, 2015 1 session February 18, 2015 1 session February 19, 2015 1 session Forty (40) Hearing sessions @ $1,200.00/session =$48,000.00 Hearing Dates: November 4, 2014 2 sessions November 5, 2014 2 sessions November 6, 2014 3 sessions November 7, 2014 3 sessions December 15, 2014 2 sessions December 16, 2014 2 sessions

January 25, 2015 2 sessions January 26, 2015 2 sessions February 21, 2015 2 sessions February 22, 2015 2 sessions March 23, 2015 2 sessions March 24, 2015 2 sessions March 25, 2015 2 sessions March 26, 2015 4 sessions May 26, 2015 3 sessions May 27, 2015 2 sessions


May 28, 2015 3 sessions Total Hearing Session Fees =$55,800.00 The Panel has assessed $27,900.00 of the hearing session fees to Claimants, jointly and severally. The Panel has assessed $27,900.00 of the hearing session fees to Respondents Morgan Stanley, MSSB and Brister, jointly and severally. All balances are payable to FINRA Dispute Resolution and are due upon receipt.

JULY 24, 2015

Morgan Stanley Fine

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