E*Trade Fails to Handcuff Broker Who Joined Morgan Stanley
A federal judge in California has denied E*Trade Financial’s bid to block a broker who jumped to Morgan Stanley from contacting former clients.
State law provides broad protection for “open competition and employee mobility,” U.S. Magistrate Judge Susan Van Keulen ruled last week, turning down the discount broker’s petition for a preliminary injunction against the broker, Julius Agbonbhase.
“Given the strong public policy in California in favor of an individual’s ability to practice his profession without restraint, the burden of the injunction sought by E*Trade on Agbonbhase would far outweigh the benefit to E*Trade,” Van Keulen wrote in denying the claim that was filed in January.
A spokesperson for E*Trade did not immediately return a request for comment on whether it will pursue a Financial Industry Regulatory Authority arbitration claim for damages and a permanent injunction against the broker that it simultaneously filed against Agbonbhase. Four and a half months after he resigned, approximately 42 E*Trade clients had transferred $61 million in total assets, E*Trade alleged.
Morgan Stanley has itself been on the other side of the table since its withdrawal 18 months ago from the Protocol for Broker Recruiting that allows advisors to take rudimentary customer-contact information when joining Protocol firms.
Earlier this week a federal judge in Pennsylvania granted the wirehouse’s request for a temporary restraining order against a broker who moved to Janney Montgomery Scott two weeks ago.
Litigation that was once a fallback strategy for large full-service firms trying to inhibit former brokers eased following the signing of the Protocol more than a decade ago, but firms such as Charles Schwab & Co., Fidelity Investments and E*Trade that largely cater to self-directed investors have picked up the slack.
Although they have developed units of advisors who offer more personal services to wealth customers to supplement their call-center and online brokers, they claim in their lawsuits to have provided all customer leads to the higher-end advisors.
E*Trade has prevailed in at least two earlier cases against advisors who joined Morgan Stanley. Last September it won an injunction against an Illinois broker, Heather Pospisil, and another one in April 2018 against Phoenix broker Lance Eaton.
Morgan Stanley last month fired a multi-state team of brokers who joined in March of this year from Charles Schwab & Co. after the discount brokerage giant accused them in seeking an injunction and restraining order of stealing client-contact data.
In the Agbonbhase case, E*Trade claimed that the broker had potential access to all of the firm’s approximately 6.6 million clients, while citing the 42 that he had successfully transferred to Morgan Stanley. In addition to seeking to restrain his further solicitations, it sought an order requiring him to return client-contact data he allegedly removed.
Judge Van Keulen’s order, in addition to citing employee protections under California Business & Professions Code 16600, said E*Trade failed to prove that the broker had taken advantage of anything that “qualifies as a trade secret” that he learned over his almost six-year stint at the firm, or taken anything illegally.
“Agbonbhase had preexisting relationships with many of those clients and their contact information is readily available through public sources,” she wrote.
The adviser, who worked for E*Trade in Cupertino and is now in a San Jose branch of Morgan Stanley, began his brokerage career in late 2008 at Waddell & Reed, according to his BrokerCheck history.
A spokeswoman for Morgan Stanley declined to comment on the decision, which was reported earlier by “FA-IQ.”