Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 1 of 12

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT ---------------------------------------x MORGAN STANLEY SMITH BARNEY LLC, and MORGAN STANLEY SMITH BARNEY FA NOTES HOLDINGS LLC,

Civil Action No.

Petitioners, - against JONATHAN R. LAKE, Respondent. ---------------------------------------x VERIFIED PETITION TO CONFIRM ARBITRATION AWARD Petitioners, Morgan Stanley Smith Barney LLC and Morgan Stanley Smith Barney FA Notes Holdings LLC, respectfully petition this Court for confirmation of an arbitration award against Respondent Jonathan R. Lake, and for entry of a money judgment against him in conformity with the award, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§9-13. A copy of the arbitration award, dated December 28, 2017, is annexed hereto as Exhibit A. PARTIES, JURISDICTION AND VENUE 1.

Petitioner Morgan Stanley Smith Barney LLC (“MSSB”) is a limited liability

company organized under the laws of the State of Delaware, with its principal place of business in New York. MSSB is a securities broker-dealer and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). 2.

Petitioner Morgan Stanley Smith Barney FA Notes Holdings LLC ("MSSB

Holdings") is a limited liability company organized under the laws of the State of Delaware, with its principal place of business in New York. MSSB and MSSB Holdings will be referred to herein as “Morgan Stanley.”

119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 2 of 12

3.

Neither MSSB nor MSSB Holdings, nor any of their members or sub-members are

citizens of the State of Connecticut. Petitioners MSSB and MSSB Holdings, and all of their members and sub-members, are citizens of the State of Delaware or New York for purposes of diversity jurisdiction pursuant to 28 U.S.C. § 1332, as evidenced by the following: a.

MSSB and MSSB Holdings have one member, Morgan Stanley Smith Barney

Holdings LLC, a Delaware limited liability company with its principal place of business in New York; b.

Morgan Stanley Smith Barney Holdings LLC's members are: (i) Morgan Stanley

Commercial Financial Services LLC, a Delaware limited liability company with its principal place of business in New York; (ii) Morgan Stanley Domestic Holdings, Inc. ("MSDHI"), a Delaware corporation with its principal place of business in New York; and (iii) MS Gamma Holdings LLC, a Delaware limited liability company with its principal place of business in New York; c.

The one member of MS Gamma Holdings LLC is Morgan Stanley International

Holdings Inc., a Delaware corporation with its principal place of business in New York; d.

Morgan Stanley International Holdings Inc. is a subsidiary of (i) Morgan Stanley

International Inc., a Delaware corporation with its principal place of business in New York; (ii) MSDW Investment Holdings (US) LLC, a Delaware limited liability company with its principal place of business in New York; and (iii) Morgan Stanley, a Delaware corporation with its principal place of business in New York; e.

The one member of MSDW Investment Holdings (US) LLC is Morgan Stanley

International Inc., a Delaware corporation with its principal place of business in New York; f.

Morgan Stanley Commercial Financial Services LLC and Morgan Stanley Smith

Barney Holdings LLC are subsidiaries of MSDHI;

2 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 3 of 12

g.

MSDHI is a wholly owned subsidiary of Morgan Stanley Capital Management, LLC,

a Delaware limited liability company with its principal place of business in New York; and h.

The one member of Morgan Stanley Capital Management, LLC is Morgan Stanley, a

Delaware corporation with its principal place of business in New York. 4.

Each of the companies referred to above are organized under the laws of the State

of Delaware and have their principal place of business in New York. 5.

Upon information and belief, Respondent Jonathan R. Lake (“Lake”) is a citizen

of the State of Connecticut who resides at 120 West Beach Drive, Lordship, Stratford, Connecticut 06615. Lake is a former Morgan Stanley employee who borrowed money from it pursuant to seven promissory notes that were the subject of the underlying arbitration. During his employment with Morgan Stanley, Lake worked in one of Morgan Stanley’s offices located in Stamford, Connecticut. 6.

The arbitration award that is the subject of this action (Exhibit A hereto) arose from

the contractual agreement to arbitrate contained in the promissory notes executed by Lake. See ¶¶ 10-12 below.

The arbitration award was rendered pursuant to FINRA’s Code of

Arbitration Procedure for Industry Disputes, FINRA Rule 13000 et seq. 7.

This court has jurisdiction over these proceedings pursuant to 28 U.S.C. § 1332 as

the amount in controversy exceeds $75,000 and there is complete diversity of citizenship between the parties. The application to this Court to confirm the arbitration award in question is being made pursuant to 9 U.S.C. § 9 because this Court has personal jurisdiction over Lake. 8.

Venue is proper in this District pursuant to 28 U.S.C. § 1391(b)(1) as this is the

judicial district where Lake resides.

3 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 4 of 12

STATEMENT OF FACTS 9.

Lake was employed as a Financial Advisor by Morgan Stanley from September 9,

2011 until August 4, 2017. During his employment, Lake was an associated person of a member of FINRA (i.e., Morgan Stanley) who was governed by all of its rules and regulations. 10.

During Lake’s employment at Morgan Stanley, he borrowed over $1.6 million

from Morgan Stanley, evidenced by the following seven promissory notes: a.

On September 9, 2011, Lake executed a promissory note evidencing a $950,110

loan from Morgan Stanley, and agreed to repay it by making nine annual installment payments beginning September 9, 2012, to be followed by subsequent installment payments due on the 9th day of September in each succeeding year, while he remained in the employ of Morgan Stanley (“Note 1,” a copy of which is annexed hereto as Exhibit B.) b.

On December 18, 2012, Lake executed a promissory note evidencing a $131,931

loan from Morgan Stanley, and agreed to repay it by making eight annual installment payments beginning December 18, 2013, to be followed by subsequent installment payments due on the 18th day of December in each succeeding year, while he remained in the employ of Morgan Stanley (“Note 2,” a copy of which is annexed hereto as Exhibit C.) c.

On October 14, 2013, Lake executed a promissory note evidencing a $128,961

loan from Morgan Stanley, and agreed to repay it by making seven annual installment payments beginning October 14, 2014, to be followed by subsequent installment payments due on the 14th day of October in each succeeding year, while he remained in the employ of Morgan Stanley (“Note 3,” a copy of which is annexed hereto as Exhibit D.) d.

On October 22, 2014, Lake executed a promissory note evidencing a $41,796 loan

from Morgan Stanley, and agreed to repay it by making six annual installment payments beginning October 22, 2015, to be followed by subsequent installment payments due on the 22nd 4 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 5 of 12

day of October in each succeeding year, while he remained in the employ of Morgan Stanley (“Note 4,” a copy of which is annexed hereto as Exhibit E.) e.

On October 15, 2015, Lake executed a promissory note evidencing a $220,918

loan from Morgan Stanley, and agreed to repay it by making five annual installment payments beginning October 15, 2016, to be followed by subsequent installment payments due on the 15th day of October in each succeeding year, while he remained in the employ of Morgan Stanley (“Note 5,” a copy of which is annexed hereto as Exhibit F.) f.

On October 24, 2016, Lake executed a promissory note evidencing a $135,791

loan from Morgan Stanley, and agreed to repay it by making four annual installment payments beginning October 24, 2017, to be followed by subsequent installment payments due on the 24th day of October in each succeeding year, while he remained in the employ of Morgan Stanley (“Note 6,” a copy of which is annexed hereto as Exhibit G.) g.

On March 3, 2016, Lake electronically acknowledged a promissory note

evidencing a $19,378 loan from Morgan Stanley, and agreed to repay it by making five annual installment payments beginning March 15, 2017, to be followed by subsequent installment payments due on the 15th day of March in each succeeding year, while he remained in the employ of Morgan Stanley (“Note 7,” a copy of which is annexed hereto as Exhibit H.) 11.

Note 1, on the second page thereof, contained the following language: All amounts outstanding under the Note shall automatically be, and become, immediately due and payable, without notice or demand, (i) if the Borrower’s employment with an Authorized Party terminates voluntarily or involuntarily for any reason or no reason whatsoever . . .

Similar, if not identical, acceleration language is contained in each of the other Notes. Based on

5 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 6 of 12

the acceleration clause in each of the promissory notes, the unpaid balance of each note became due and payable when Lake left the employ of Morgan Stanley on August 4, 2017. 12.

Notes 1, 2, 3, 4, 5, 6, and 7 each contain a clause which states that “[a]ny

controversy or claim arising out of or relating to this Note shall be settled by arbitration in accordance with the rules of the Financial Industry Regulatory Authority and judgment upon the award entered by the arbitrator(s) may be entered in any court having jurisdiction thereof.” 13.

As previously noted, Lake’s employment with Morgan Stanley terminated on

August 4, 2017, when Lake resigned as a Morgan Stanley employee and went to work for Wells Fargo Clearing Services, LLC. Pursuant to the express terms of each of the promissory notes, the unpaid principal balance on the notes, plus accrued interest, became immediately due and payable on that date. 14.

Following his termination as a Morgan Stanley employee, Lake did not pay any

portion of the amount due on the promissory notes. Accordingly, on or about August 29, 2017, Morgan Stanley commenced an arbitration against Lake with the FINRA office of Dispute Resolution, Case No. 17-02313 (the “Arbitration”). A copy of the Statement of Claim filed by Morgan Stanley in the Arbitration on or about August 29, 2017 is annexed hereto as Exhibit I. 15.

Lake did not file an Answer to the Statement of Claim. A lawyer for Lake named

Jeffrey S. Stephens initially began to act for Lake in the arbitration, but this attorney filed a Withdrawal of Appearance on November 28, 2017, a copy of which is annexed hereto as Exhibit J. No other lawyer appeared for Lake in the arbitration. 16.

In response to the withdrawal of appearance by Lake’s counsel, FINRA sent a

letter to Lake on December 1, 2017, a copy of which is annexed hereto as Exhibit K. This letter stated that FINRA selected an arbitrator based on the parties’ consolidated lists of proposed

6 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 7 of 12

arbitrators. It also stated that “this matter will be submitted to the arbitrator and will be decided on the documentary evidence submitted by the parties.” Lake did not respond to this letter and did not submit any documents for the arbitrator. 17.

In the Award (Exhibit A hereto), on the next to last page, the Arbitrator stated as

follows under “Other Issues:” OTHER ISSUES: The Arbitrator acknowledges that he has read Claimants’ Statement of Claim and other materials filed by the parties. Respondent Jonathan Richard Lake did not file a Statement of Answer. Accordingly, this matter proceeded pursuant to Rule 13806 of the Code of Arbitration Procedure. The Arbitrator determined that Respondent Jonathan Richard Lake was served with the Statement of Claim by regular mail and on Overdue Notice and Notification of Arbitrator by regular mail and certified mail and is therefore bound by the Arbitrator’s ruling and determination. 18.

The Award of the arbitrator was issued on December 28, 2017 (Exhibit A hereto).

In the Award, Lake was ordered to pay Morgan Stanley a total of $955,910, as more fully set forth below. 19.

The following is the verbatim text of the portion of the Award (at page 2) in

which the arbitrator set forth his ruling: “AWARD: The undersigned Arbitrator has decided and determined in full and final resolution of the issues submitted for determination as follows:

1. On the first note, Respondent is liable for and shall pay to Claimants $422,271.10, plus pre-award interest in the amount of $8,323.95, plus interest on the award of $422,271.10 at the rate of 5.75% per annum from August 30, 2017 until the award is paid in full. 2. On the second note, Respondent is liable for and shall pay to Claimants $65,965.80, plus pre-award interest in the 7 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 8 of 12

amount of $639.78, plus interest on the award of $65,965.80 at the rate of 5% per annum from August 30, 2017 until the award is paid in full. 3. On the third note, Respondent is liable for and shall pay to Claimants $73,692.40, plus pre-award interest in the amount of $1,490.00, plus interest on the award of $73,692.40 at the rate of 6% per annum from August 30, 2017 until the award is paid in full. 4. On the fourth note, Respondent is liable for and shall pay to Claimants $27,864.61, plus pre-award interest in the amount of $551.18, plus interest on the award of $27,864.61 at the rate of 6% per annum from August 30, 2017 until the award is paid in full. 5. On the fifth note, Respondent is liable for and shall pay to Claimants $176,735.07, plus pre-award interest in the amount of $3,178.81, plus interest on the award of $176,735.07 at the rate of 5.75% per annum from August 30, 2017 until the award is paid in full. 6. On the sixth note, Respondent is liable for and shall pay to Claimants $135,791.00, plus pre-award interest in the amount of $2,096.39, plus interest on the award of $135,791.00 at the rate of 5.5% per annum from August 30, 2017 until the award is paid in full. 7. On the seventh note, Respondent is liable for and shall pay to Claimants $15,847.57, plus pre-award interest in the amount of $45.21, plus interest on the award of $15,847.57 at the rate of 5.48% per annum from August 30, 2017 until the award is paid in full. 8. Claimants' request for attorneys' fees is denied. 9. All other relief requests are denied. 10. Respondent is liable for and shall reimburse Claimants for the $1,250.00 non-refundable portion of the filing fee. 11. Respondent is liable for and shall reimburse Claimants for the $300.00 paper decision fee.” 20.

Lake and Morgan Stanley were served with a copy of the Award by FINRA on

December 28, 2017 under cover of two letters, both of which are annexed hereto collectively 8 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 9 of 12

as Exhibit L. Both letters state that “FINRA Rules provide that all monetary awards shall be paid within 30 days of receipt unless a motion to vacate has been filed with a court of competent jurisdiction.” The 30 day requirement to pay an arbitration award is set forth in FINRA Rule 13904(j). 21.

Lake has not paid any portion of the more than $950,000 that he was ordered

to pay in the Award. He also has not made a motion to vacate the Award. 22.

As previously noted, the promissory notes each provide that judgment upon

the Award may be entered by this Court because it has jurisdiction over Lake. Furthermore, pursuant to 9 U.S.C. § 9, either party to an arbitration may petition the Court to confirm the Award. The Judgment Amount 23.

The Court should enter judgment in favor of Morgan Stanley and against Lake

for the amount of principal and interest due under each of the seven promissory notes, as directed in the Award (page 2). The amount of the money judgment to be entered by the Court is set forth in paragraphs 26-27 below. 24.

As the Court will note from page 2 of the Award, the arbitrator set forth (i) the

specific dollar amount of the principal owed under each promissory note, and (ii) the specific amount of interest owed through August 29, 2017, when the Statement of Claim was filed. These amounts are also set forth on page 5 of the Statement of Claim (Exhibit I hereto). The arbitrator also directed payment of interest at various rates on the unpaid principal of each note “from August 30, 2017 until the award is paid in full.” See Award, page 2. 25.

The calculation of interest from August 30, 2017 through January 15, 2018 is

set forth in the accompanying Affidavit of Morgan Stanley’s attorney, Ira N. Glauber, dated

9 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 10 of 12

January 17, 2018. That affidavit also has the daily rate of interest for the Court to apply from January 16, 2018 until the date that judgment is entered by the Court. 26.

Based on the foregoing, Morgan Stanley is entitled to confirmation of the Award

and entry of a money judgment against Lake in conformity with the Award, as follows: 1.

Note 1: principal balance per Award ……………………………$422,271.10 pre-8/30/17 interest per Award …...……………………$ 8,323.95 8/30/17-1/15/18 interest..…………………...…………..$ 9,246.58

2.

Note 2: principal balance per Award …………………………….$ 65,965.80 pre-8/30/17 interest per Award ……………………….....$ 639.78 8/30/17-1/15/18 interest ……..……………..………..….$ 9,246.58

3.

Note 3: principal balance per Award ……………………………..$73,692.40 pre-8/30/17 interest per Award ………………………....$ 1,490.00 8/30/17-1/15/18 interest ……………………..……..…....$ 1,683.82

4.

Note 4: principal balance per Award ……………………………..$ 27,864.61 pre-8/30/17 interest per Award ……………………….…$ 551.18 8/30/17-1/15/18 interest...…………………...…………..$ 636.68

5.

Note 5: principal balance per Award ……………………….……$ 176,735.07 pre-8/30/17 interest per Award …………………….……$ 3,178.81 8/30/17-1/15/18 interest …………..……………………..$ 3,870.01

6.

Note 6: principal balance per Award ……………………………$ 135,791.00 pre-8/30/17 interest per Award …...……………….……$ 2,096.39 8/30/17-1/15/18 interest..…….…..……………….……..$ 2,844.17

7. Note 7: principal balance per Award ………………………….……$ 15,847.57 pre-8/30/17 interest per Award ……………………………$ 45.21 8/30/17-1/15/18 interest …..……….…..…………...……..$ 330.72

27.

8. Filing Fee Reimbursement

$

1,250.00

9. Decision Fee Reimbursement

$

300.00

Total Principal and Interest Through $955,910.91 January 15, 2018 In addition, when the Court enters judgment, it should add per diem interest in the

amounts set forth in paragraph 7 of the affidavit of plaintiff’s counsel supporting this Petition to

10 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 11 of 12

the figure of $955,910.91 for each day from January 16, 2018 to the date that judgment is entered. WHEREFORE, Petitioners, Morgan Stanley Smith Barney LLC and Morgan Stanley Smith Barney FA Notes Holdings LLC, request the following: A. An order confirming the arbitration award against Jonathan R. Lake; B. Entry of a money judgment against Jonathan R. Lake in the amount of $955,910.91, plus per diem interest as set forth in the affidavit supporting this Petition; and C. Such other and further relief as the Court deems just and proper. Respectfully submitted,

OF COUNSEL Dilworth Paxson, LLP Ira N. Glauber 99 Park Avenue, Suite 320 New York, New York 10016 Tel: (917) 675-4252 Email: [email protected]

By:_/s/ John F. Conway_____________ John F. Conway (ct 04763) Loughlin Fitzgerald, P.C. 150 South Main Street Wallingford, Connecticut 06492 Tel: (203) 265-2035 Email: [email protected] Attorneys for Petitioners Morgan Stanley Smith Barney LLC, and Morgan Stanley Smith Barney FA Notes Holdings LLC

11 119951802_1

Case 5:18-cv-00147 Document 1 Filed 01/25/18 Page 12 of 12