Morgan Stanley Refiles TRO to Gag Stifel Brokers, Settles in NJ
(Updated in first and last two paragraphs with reference to an arbitration decision involving a broker accused of taking confidential information, and removes references to a confidential settlement.)
Morgan Stanley this week signaled its intention to continue pursuing brokers who allegedly take client-contact information with them illegally, even as an arbitration panel last month awarded it less than it sought from a broker it sued shortly after leaving the Protocol for Broker Recruiting a year ago.
The wirehouse on Tuesday filed a “renewed motion for a temporary restraining order” that would enjoin six brokers who joined Stifel Nicolaus in Bourbonnais, Illinois, in early September from contacting clients, alleging that they lied in legal declarations at the time about not taking firm-owned data.
A federal judge had earlier denied Morgan Stanley’s TRO request but wrote that the firm is “welcome to come back and renew” its motion if it obtains “more definite proof of solicitations or the theft of its information before the arbitration hearing,” according to the renewed motion.
“It is now clear that virtually everything Defendants told this court was untrue,” Morgan Stanley wrote, citing evidence that the six advisors retained contact information in their cell phones on hundreds of its clients and that one obtained a birthday-alert list maintained by an outside Morgan Stanley vendor to help make contact.
In earlier depositions, they had said that their attempt to revive their client books were made “through memory, the White Pages and other public sources, such as the Internet,” according to the renewed TRO filing. Four of them subsequently amended their responses to say they had some client-contact on their phones, it said.
Their alleged action not only violated their Morgan Stanley contracts but also Stifel’s “Non-Protocol Transition Guidelines” that prohibit taking proprietary information on personal electronic devices, Morgan Stanley asserted. “Defendants also defied Stifel’s explicit instructions and then grossly misled this Court with respect to their conduct,” the renewed motion asserted.
Client-contact data looms large for brokers seeking to jump-start their practices at new firms, and lawyers, headhunters and managers encourage them to abide by the letter of their employment agreements and using only public sources when they leave. Morgan Stanley and UBS’s withdrawals from the Broker Protocol a year ago lifts protections that allow former employees to take rudimentary client-contact information to another Protocol signatory.
“Defendants bought themselves valuable time to continue diverting Morgan Stanley clients through the use of the very information they swore they had not retained and did not have in their ‘possession, custody, or control,’” the amended TRO motion says. “Defendants then delayed Morgan Stanley even further in discovering the truth by providing false (and verified) interrogatory responses, allowing them even more time to divert Morgan Stanley’s clients and misappropriate the firm’s confidential information.”
The Stifel team, known as The Heartland Group, is led by Zachary Birkey, who had managed Morgan Stanley’s Bourbonnais office. He did not immediately respond to a request for comment on the new allegations, and the five other brokers were in a meeting and could not come to the phone, said a person at the office.
Gary Blackman, a lawyer at Levenfeld Pearlstein who represents the advisors, did not return a call for comment.
Separately, a Finra arbitration panel in Philadelphia on November 7 ordered John L. Fitzgerald, a broker in Vineland, N.J., to pay Morgan Stanley $5,500 in compensatory damages and $33,252 in legal fees related to its claim that he had taken confidential data with him when he left to become an independent broker with Commonwealth Financial Network in December 2017, shortly after it quit the Protocol.
Morgan Stanley had sought more than $1 million from him, according to the arbitration award. (Editor’s note: AdvisorHub is preparing a separate story on the Fitzgerald arbitration.)