Update: Fired Morgan Stanley Team Reach Non-Solicit Pact with Schwab
(Updated on April 22 to change headline and say in paragraphs 5-7 that brokers agreed to a permanent injunction against soliciting Schwab customers while other claims will continue in Finra arbitration.)
In another sign that brokers must tread carefully in preparing to restart practices at another firm, Morgan Stanley has fired a veteran team that joined less than three weeks ago from Charles Schwab & Co.
Schwab on April 5 sought a temporary restraining order and preliminary injunction against Christopher R. Armstrong and Randall Kiefner to prevent them from calling high-net worth clients whose contact information they allegedly printed out or copied days before their surprise resignations on March 29, according to the lawsuit.
Armstrong and Kiefner, who worked from Morgan Stanley offices in Red Bank, NJ, and Orlando, Fla., respectively, contacted at least 15 clients within two days of their resignations from Schwab, the court filing said.
People answering the advisors’ phones at their Morgan Stanley branches this week confirmed they no longer work with the firm. The advisors could not be reached.
On April 19, a lawyer for the brokers informed Judge Michael Shipp of the U.S. District Court for the district of New Jersey that his clients and Schwab agreed to entry of a permanent injunction. It prohibits them from soliciting any Schwab client whose name they obtained through employment at the firm through September 29, 2020, and requires them to return any records and information they took from the firm.
Schwab and the brokers are proceeding with a Financial Industry Regulatory Authority arbitration regarding “non-injunctive relief” in claims and potential cross-claims for monetary relief and attorneys’ fees, according to the stipulated permanent injunction.
A spokeswoman at Schwab declined to comment on whether the firm will use the brokers’ dismissals to bolster its arbitration arguments.
In alleged violation of their employment contracts, “Kiefner printed out some or all of his entire practice list three times shortly before he resigned, and Armstrong, without any apparent legitimate business reason, reviewed in rapid succession 148 client-overview screens in a proprietary database about a week before he resigned,” according to the suit filed with the U.S. District Court for the district of New Jersey.
Lawsuits seeking judicial restraining orders against brokers contacting former clients had been a hallmark of full-service firms such as Morgan Stanley and Merrill Lynch. The resultant high litigation costs prompted the big firms more than ten years ago to create the Protocol for Broker Recruiting that allows advisors to take rudimentary client information with them when moving among signatories to the pact.
Morgan Stanley and UBS pulled out of the Protocol in late 2017 in an attempt to hinder movement from their ranks at a time when they had cut recruiting budgets, and Schwab is not a signatory to the pact.
Morgan Stanley filed for several TROs after its Prexit decision, with mixed success, but has been less litigious of late. Executives said on Wednesday that they are having failry good success in keeping brokers in-house.
Discount brokers such as Schwab, Fidelity Investments and E*Trade that traditionally service self-directed investors, meanwhile, have stepped up their lawsuits against brokers who allegedly violate their employment contracts and privacy laws by taking cutomer contact data.
The lawsuit against Kiefner and Armstrong said they had separate practices but jointly serviced high-net worth clients, primarily in New Jersey. The data they took included confidential information about clients holding more than $750 million in assets in Schwab accounts, the lawsuit said.
Armstrong and Kiefner have been registered representatives for 26 and 25 years respectively, including more than ten years with Schwab, according to their BrokerCheck histories. Armstrong began his career in February 1986 at Dean Witter Reynolds while Kiefner first registered in 1990 with Titan/Value Equities Group before joining Schwab in 1993 for the first of two sojourns with the firm, his BrokerCheck history says.