Morgan Stanley Wins Bid to Tie Hands of Former Connecticut Brokers
Morgan Stanley notched another victory in its assiduous attempt to prevent a pair of brokers who left its Mystic, Conn., branch in May from contacting clients they inherited from a broker who retired.
A three-person Financial Industry Regulatory Authority panel granted the firm’s request for a “permanent” injunction prohibiting June Strunk and Shane O’Brien from soliciting the investors from their new Janney Montgomery Scott office in Mystic until April 30, 2019, according to a federal court filing on Monday citing the arbitrators’ decision.
Morgan Stanley rushed one day after the brokers jumped to Janney on May 15 to seek a temporary restraining order and to recover $1.5 million in damages. It followed with the arbitration request for an extended moratorium that was granted this month, illustrating what some brokers and lawyers called an aggressive attempt to curb departures.
“Morgan Stanley expects all departing employees to adhere to their contractual obligations,” a spokeswoman wrote in an e-mail. “Morgan Stanley is pleased with the arbitration ruling in this matter.”
O’Brien, who along with Strunk oversaw $300 million of Morgan Stanley client assets and generated 40% of revenue at its Mystic branch, according to the firm, declined to comment on the effects of the permanent injunction.
Employment lawyers in broker-versus-firm cases have been watching the case closely because Morgan Stanley’s legal arguments highlights how side agreements can trump the protections of the Broker Protocol. That agreement allows departing brokers to take certain client information with them when they move to another signatory Protocol firm.
“The financial advisors followed the Broker Protocol,” Karen Shakoske, a Janney spokeswoman, wrote in an e-mail. “A separate agreement contained certain language that in our opinion permitted the advisors to solicit accounts in accordance with normal broker protocol procedures.”
Morgan Stanley has argued that the brokers’ solicitations violated a “Former Financial Advisor Program” document signed in 2014 when they assumed accounts from Laurel Butler, a broker who was retiring. “These covenants protect both Morgan Stanley and also Ms. Butler, who receives a continued payout on accounts only so long as they continue their business relationship with Morgan Stanley,” the filing said.
Morgan Stanley did not spell out how many clients or assets the team inherited from Butler, but argued in its request for an expedited TRO hearing that it would suffer “immediate and irreparable injury, loss and damage” if the brokers continued to solicit the customers.
The brokers responded in a court filing that they had already suffered “drastic” consequences from the temporary restraining order.
“The team is doing well at Janney and they are very happy with the support they’ve received thus far and our client-first culture,” Shakoske said on Tuesday. “They have a substantial practice of their own away from the account relationships in question.”
She declined to comment on the outstanding litigation in which Morgan Stanley is seeking damages from the brokers.