Morgan Stanley files lawsuit against Washington

SEATTLE — Morgan Stanley DW Inc. has sued Washington regulators after the state withdrew from a settlement agreement over investment advice to Microsoft Corp. employees.

The complaint asks the court to “affirm and enforce the agreement that the state of Washington entered into with us,” Morgan Stanley spokeswoman Andrea Slattery said Wednesday. The suit was filed Tuesday in Thurston County Superior Court in Olympia.

“Suing a regulator is not a step we take lightly, but there are fundamental issues of fairness and good faith to be upheld here,” Slattery said.

Scott Kinney, a spokesman for the state Department of Financial Institutions, said the department hadn’t seen the complaint and couldn’t immediately comment.

The withdrawn settlement concerned allegations that Morgan Stanley’s brokers gave Microsoft employees bad investment advice during the high-tech boom of the late 1990s, when workers were flush with lucrative stock options.

Last year, brokers Arun Sardana and Michael Moriarty were accused of talking employees into high-risk strategies that weren’t suitable for their financial needs and wound up costing them hundreds of thousands of dollars.

In November, Deborah Bortner, then the securities administrator for the Financial Institutions department, negotiated a settlement that required Morgan Stanley to pay $200,000 and change some practices. But lawyers for the state Attorney General’s Office reviewed the settlement and concluded that some provisions did not provide the state adequate enforcement power.

Bortner was later demoted, in part because of those settlement negotiations. She was on vacation and did not immediately return a call seeking comment Wednesday.