Schwab Brings Another Non-Solicit Suit Against Former Broker
Continuing to flex its legal muscle against departed brokers, Charles Schwab & Co. on Wednesday sued a New York-area broker for allegedly reaching out to some of his former clients.
Wednesday’s complaint filed in U.S. District Court for the Southern District of New York seeks a preliminary injunction blocking Peter Pavlakis from contacting his former clients, pending conclusion of an arbitration claim against him asking for a permanent injunction and damages.
Pavlakis, who since July has worked at bank-owned broker-dealer M&T Securities, Inc. at branches in Connecticut, declined to comment. He had spent 19 out of his 20-year brokerage career with Schwab, according to his BrokerCheck history.
A spokeswoman for M&T, which was not named in the lawsuit, declined to comment.
Schwab discharged Pavlakis in March, citing “potential inaccurate documentation” in note-taking systems that were unrelated to client sales and “may or may not have been intentional,” according to a summary of its U-5 dismissal form on BrokerCheck.
Schwab’s escalating litigiousness is likely aimed at sending a message to the growing number of its brokers who are considering leaving the company, according to some observers, reflecting its success at transitioning them from mere discount brokerage order-takers to wealth managers.
“When a firm like Schwab sees more attrition to a competitor, or brokers forming their own business, their sensitivities are up,” said Brandon Reif, a southern California securities litigation lawyer, who has not been involved in the recent cases. “If Schwab starts suing a series of producers in a row, there are a lot of producers…who will now reconsider going.”A spokesman for Schwab repeated his earlier statement that the firm will not hesitate to enforce brokers’ contractual and legal obligations to protect “customer information and confidentiality.” He declined to comment on whether its litigation strategy has changed.
Schwab last week sued David Spiess, who resigned in mid-August with the intention of starting his own firm. Days earlier it asked a Texas court to enjoin John A. VanEngelenhoven from calling former customers from a new advisory firm he was opening. Spiess had worked at Schwab for his entire 22-year brokerage career, and VanEngelenhoeven for 14 years.
Schwab also is seeking injunctions against Wisconsin broker Andy W. Saeger, who spent 12 years at the firm before resigning last year, and New Orleans broker Alfredo J. Martinez, who left in March after a decade with the firm.
At least two clients reported that Pavlakis had contacted them to move assets, according to Wednesday’s filing. Schwab sent him a cease-and-desist letter after hearing from the first client, but he denied he had breached his employment contract and also said it was unenforceable, according to the complaint.
Other discount brokers, including Fidelity Investments, have also sued former brokers over alleged client-solicitation contract abuses, but none has been as aggressive as San Francisco-based Schwab.