Morgan Stanley Sues $800k Producer Who Joined Janney Montgomery
(Adds comment from Janney Montgomery spokesman fifth and sixth paragraphs.)
Morgan Stanley on Friday filed a lawsuit against Julie Knight, an $800,000 producer who joined Janney Montgomery Scott ten days ago after spending her entire eight-year career as an adviser with Morgan Stanley.
The filing, which suggests that Knight violated her employment agreements by using confidential data to solicit customers to move accounts to her new firm, revives Morgan Stanley’s campaign to inhibit brokers in the wake of its exit from the Protocol for Broker Recruiting almost 18 months ago. The firm initially brought a slew of filings for temporary restraining orders, but has become more selective in pursuing such cases in parallel with seeking relief in Financial Industry Regulatory Authority arbitrations.
“Morgan Stanley will take appropriate legal action to enforce its contractual rights and protect our clients’ interests,” spokeswoman Susan Siering wrote in an e-mail.
Reached at her Janney Montgomery office in Allentown, Pa., Knight said she could not comment pending a discussion with her lawyers.
A Janney spokesman said the firm works closely to help advisors “strictly follow all rules, contracts and procedures,” regardless of whether firms they are leaving are Protocol members. Janney is a member of the pact, which allows brokers to take some client contact information with them when moving among signatory firms.
“We will continue to strongly support advisors who desire to join Janney’s boutique and client-driven culture,” he wrote in an e-mail.
Morgan Stanley in March lost a bid in court to restrain a Dallas team that joined Steward Partners from soliciting former clients, but is pursuing claims for damages and a permanent injunction in arbitration. Also pending in arbitration is a complaint filed in December against a New Jersey team that joined Stifel Nicolaus.
In Friday’s filing, Morgan Stanley did not cite direct evidence that Knight downloaded or copied customer data, as it has in some other cases. But it filed an affidavit from Knight’s former assistant alleging that “client files previously maintained in the Defendant’s office are gone.”
“There was no legitimate reason for destroying all of the information contained in these client files,” the complaint said of the missing documents. “[T]he information contained in these client files would have been useful to Morgan Stanley in trying to service these clients following the Defendant’s departure.”
Another “former team member” said in an affidavit that Knight had solicited at least three Morgan Stanley clients for business since her resignation.
Morgan Stanley appears to be sticking to its strategy of selectively flexing its legal muscle to make brokers think twice about the ease of restarting their businesses at a new firm, said David A. Gehn, a New York-based lawyer with Ellenoff Grossman Schole LLP.
“There is meat on this bone, in terms of fact,” Gehn said of the legal argument in the Knight case. He is not involved in the litigation.
Morgan Stanley also has filed an arbitration complaint seeking damages and an injunction against Knight with the Financial Industry Regulatory Authority, according to the lawsuit, as is typical in employee contract cases in the brokerage industry. Under Finra rules, arbitrators can schedule an expedited hearing on a request for a permanent injunction within 15 days of a court order for a temporary injunction.
As part of its filing, Morgan Stanley alluded to the likelihood that Knight received inducements to join Janney, without explicating how that could bolster its arguments over her alleged breach of contract and misappropriation of trade secrets.
“Based on prior deals paid by Janney and other securities firms, Morgan Stanley has reason to believe the Defendant received financial inducements totaling over $1 million, including an upfront forgivable loan and asset and/or production bonuses,” the filing said.