Wells Sues Breakaway Missouri Team for Breach of Broker Protocol
(Updates with comment from an outside lawyer in seventh paragraph and details of Pultman’s career in last paragraph.)
Wells Fargo’s brokerage unit on Friday sued five former advisers and sales associates who had been overseeing about $600 million in client assets, claiming they violated the Protocol for Broker Recruiting and various employment agreements by taking confidential customer data for use at a registered investment advisory firm they recently launched.
The complaint, filed against 25-year A.G. Edwards and Wells Fargo veteran Brian Pultman and his teammates, seeks return of the data, a restraint on soliciting former clients and formation of a trust to hold profits their RIA has booked from former Wells customers. Pultman left Wells three weeks ago to form Correct Capital Wealth Management, which is named as a defendant in the lawsuit that Wells filed in federal court for the eastern district of Missouri.
The advisers e-mailed photos of client account information, account numbers and other confidential information for at least two of Pultman’s largest clients in advance of their departure, as well as spreadsheets listing active 401(k) and IRA clients or prospects and questionnaires contains participation rates in retirement plans, estimated fees, client account balances and asset allocation, according to the complaint.
Reached at his Correct Capital office in Clayton, Missouri, near Wells Fargo Advisors’ headquarters, Pultman said he could not immediately comment on the lawsuit. He had earlier told AdvisorHub that his team had generated about $3.2 million in trailing-12-month revenue at Wells, and had been considering moving their retirement-focused practice for about a year.
Wells’ allegations come as lawyers, brokerage firm officials and recruiters have been cautioning advisers preparing for a move to abide by the letter of their contracts in an era where larger firms are hiring fewer experienced advisers and quicker than in the recent past to litigate alleged violations in an attempt to keep customers in-house.
While many recent restraining order actions involve firms that have left the Protocol, which permits advisors to bring limited customer-contact information with them, both Wells Fargo and Correct Capital remain in the pact. Terms of the Protocol trump certain employment agreements on confidentiality and customer privacy, but the Pultman group’s alleged activities before and after their resignations violated the pact and subject them to non-solicitation of “certain former clients” for one year, the lawsuit asserts.
“The Protocol is a well-worn path towards independence, but the allegations in Wells Fargo’s filing serve as a reminder that transitions, even when using the Protocol, are still serious business,” Sharron Ash, a lawyer at Hamburger Law Firm in New Jersey wrote in an e-mail. “The mishandling of client data, as alleged here, creates substantial exposure to litigation, and could trigger a related regulatory investigation.”
Pultman and fellow advisors John Biedenstein and Megan Badolato operated as Profit Formula advisors, according to a footnote in the lawsuit. The program grants higher payouts to brokers willing to pay more of their overhead costs than traditional Wells Fargo Advisor’s private client group teams.
Wells suggested in the lawsuit that the brokers may have pre-solicited some customers before they submitted their resignations, which would also violate the Protocol. Pultman registered “correctcap.com” as a website domain name at the end of July, filed the RIA’s registration in Missouri at the end of August and on October 1, three days after resigning, had his firm issue a press release saying that Correct Capital managed over $600 million of assets.
Though breakaway brokers often register RIAs and domain names prior to a move through outside lawyers to avoid detection, the Correct Capital team may have slipped with the public relations release’s AUM assertion. “This statement could not have been true…unless the Pultman Team improperly had contacted and solicited clients before their resignation,” the lawsuit says.
Wells, which said it learned of the alleged violations through an investigation opened after the team resigned, cited five counts that include breach of confidentiality agreements, unjust enrichment, civil conspiracy and aiding and abetting the former employees’ breach of a duty of loyalty to the firm.
Pultman, who began his brokerage career in 1993 with A.G. Edwards, has four customer disputes disclosed on his BrokerCheck record, including one that was denied and another that was closed without action. Of the other two, one related to industry-wide auction-rate securities failures in 2008. The second, a 2005 claim of $10 million for alleged unsuitable investments and negligence, was settled for $195,000, with Pultman contributing $40,000, according to BrokerCheck.