Morgan Stanley Ties Hands of Broker Who Jumped After Protocol Exit—Sources
Morgan Stanley went to court on Monday to prevent a broker in its Aventura, Florida, branch from contacting former clients from his new position at a private bank that he had joined last Friday, according to court documents reviewed by AdvisorHub.
A judge on Tuesday morning granted the temporary restraining order, said two people familiar with the event, who spoke on condition of anonymity.
While the broker, Doron Rachman, joined a firm that is not a member of the Protocol for Broker Recruiting, Morgan Stanley’s quick moves to handcuff him just two weeks after it left the pact is meant to send a signal to its 16,000 brokers and rival firms that it is serious about inhibiting its employees from jumping, observers said. The Protocol permits brokers to move among its more than 1,500 signatory firms with rudimentary client contact information without fear of losing crucial time in restarting their practices.
“It seems like what Morgan Stanley is doing here, in a very calculated manner, is to get a TRO to get the word out it’s serious about departing brokers,” said Thomas Lewis, an employment lawyer specializing in the securities industry at Stevens & Lee, which is not involved in the Rachman case.
Rachman, who joined the private banking group of Bank Leumi in Aventura, was not available to discuss his situation said a person at the Israeli bank’s New York headquarters. She also said that the bank lawyer cited in the filings Morgan Stanley made in the 11th Circuit Judicial Court for Miami-Dade County was not available to speak.
The case appears to be the first effort by Morgan Stanley to put teeth behind its warning to brokers earlier this month that it would enforce one-year nonsolicitation clauses most of them assented to by signing employment, joint-production, inherited account or promissory note agreements.
“With our exit from the Protocol, advisers are subject to the terms of any applicable client non-solicitation restrictions and/or confidentiality obligations, including restrictions on removing client-related information,” a Morgan Stanley lawyer told advisers in a recent memo.
A Morgan Stanley spokeswoman declined to comment on the firm’s policy or on Rachman, as did Michael Taaffe, the Sarasota-based lawyer who filed the restraining order request.
According to a court affidavit submitted by Rachman’s former complex manager, William Van Scoyoc, the broker allegedly printed out a 14-page list of names, cellphone numbers and e-mail addresses of clients five calendar days before he “abruptly” resigned and sent another list of 200 clients and prospects to his personal e-mail a day before leaving. Those efforts and phone conversations with customers about his alleged plans violated firm policies and procedures because the data was confidential and owned by Morgan Stanley, according to the affidavit.
Rachman’s alleged actions also contravened a joint production arrangement policy he had with fellow broker Donald Lockshin, according to an affidavit signed by Lockshin. Several of Rachman’s clients confirmed they were contacted about his move shortly after he resigned and one “large client relationship, with over $1 million in assets under management,” told Lockshin she would follow his partner to Bank Leumi, according to his affidavit.
Morgan Stanley is conducting a forensic review of Rachman’s emails, cell and phone logs and other electronic activities and calendar events and “will likely continue to uncover additional wrongdoing,” Van Scoyoc attested in the affidavit, which was filed to persuade the Florida court to quickly issue a restraining order.
“I view this as a relatively easy case for Morgan Stanley,” said Lewis, citing Rachman’s history and the apparent evidence the firm has gathered. “It is going to try to get some traction out of it to show that moving with names and email addresses that would be OK under the Protocol is going to be watched real closely.”
Rachman registered as a broker with Leumi Investment Services on November 17 after almost six years at Morgan Stanley, according to his BrokerCheck record. A registered broker for 17 years, he has worked at eight firms since his first position with Prudential Securities in 1992. He was not registered as a broker for eight years between June 2002—when his then-employer LH Ross was expelled from the securities industry—and August 2010, when he joined Morgan Stanley for the first of two tours with the firm.
Rachman filed for a since-discharged Chapter 7 bankruptcy in 2008, the only notification listed on his BrokerCheck history.