Focus Financial Sues Executive Who Jumped to Hightower
Two of the wealth management industry’s biggest acquirers of registered investment advisory practices are facing off in a Delaware court in a trade secrets lawsuit.
The lawsuit, filed in Delaware Chancery Court, does not name the “confidential, proprietary and trade secret information” it alleges he purloined but described it as a “critical driver of Focus’s success” that the firm strives to keep secret. Holsopple joined Focus in January 2015 as one of six managing directors, and was responsible for sourcing and cultivating prospects across 19 states, according to the lawsuit.
“This information is the lifeblood of Focus, and Focus has spent an astronomical amount of time and resources to develop, cultivate, and protect this information since Focus’s inception,” says the redacted complaint, which blacks out numerous passages specifying the data.
Holsopple, who the suit says falsely represented that he was not joining a direct competitor when he unexpectedly resigned and who was subsequently sent a cease-and-desist letter, did not respond to a request for comment.
“We’re aware of the claim filed by our chief growth officer’s former employer,” said a Hightower spokeswoman. “We believe the claim is without merit and we intend to defend this suit vigorously.”
Spokespeople at Focus did not return requests for comment.
New York-based Focus, founded by former American Express manager Rudy Adolf in 2004, has invested in more than 60 partner firms in more than 30 states. Like Chicago-based Hightower, it floundered during the 2008-2009 financial crisis, but revamped its capital structure and went public in July 2018, the first RIA rollup to do so. Holsopple led a panel discussion with some partner RIA firms at Focus Financial’s first “investor day” last November.
Hightower, which was founded in 2008 with capital from former Charles Schwab president David Pottruck and other industry veterans, initially recruited wirehouse brokers to operate as partners with the prospect of cashing out in an IPO or takeover. It changed its strategy to acquiring independent advisory practices, with the help of a recapitalization from private equity firm Thomas H. Lee Partners and new chief executive, Bob Oros.
“Key to Focus’s monumental success, including the successful IPO, has been sourcing and cultivating RIAs across the country to be investment opportunities for Focus or its partner firms—a nationwide task in which Mr. Holsopple played a substantial and leading role,” the lawsuit asserts.
It accused him of violating five agreements associated with profit-sharing units he was granted “over and above his significant salary and bonuses” that prohibited taking proprietary information, working for a competitor or soliciting Focus employees, customers or prospects for as long as a year from his termination date, the lawsuit said. It accuses Hightower of tortious interference with those agreements, and asks the Delaware court to hold a trial determining monetary awards (including lawyers’ fees) and permanently enjoin Holsopple and Hightower from using the alleged proprietary data.
Shares of Focus Financial, which closed Monday night down 63% from their IPO price of $38, were changing hands on Nasdaq late Tuesday morning up 9% at $18.33, amid a broad market resurgence.