A.G. Edwards suing over broker defections

The escalating battle between A.G. Edwards & Sons Inc. and Stifel Financial Corp. is now in the courts. The conflict was sparked Aug. 23 when John Lee, A.G. Edwards’ Western regional manager, left for Stifel, where he is now senior vice president and managing director. Both companies are based in St. Louis. In an unusual move for A.G. Edwards, it sued Mr. Lee late last month. Meanwhile, in a separate case, A.G. Edwards this month sued Terrence McCreanor, former manager of its Marco Island, Fla., branch, and three former reps there — William Coen, Stephen Macko and John Stollmeyer — after they went to New York-based Morgan Stanley Sept. 6. A federal judge last week ordered the men to return any client records they might have taken. The lawsuits and the nasty dispute over Mr. Lee’s departure come as A.G. Edwards is attempting to retain brokers in advance of its pending sale to Wachovia Corp. of Charlotte, N.C. A.G. Edwards historically has not sued departing brokers for alleged misuse of trade secrets or breach of duty, industry observers say. And unlike some other firms, it does not employ non-compete agreements. A.G. Edwards’ aggressiveness in going after Mr. Lee struck some observers as a sign that the kinder, gentler culture for which A.G. Edwards was known is now gone.
“Edwards reps were always free to go,” Mr. Lee said. “In fact, [A.G. Edwards’ chairman and chief executive, Robert] Bagby, has said when we leave, he’d come down and help you pack up your stuff and let you go.” That was also a sentiment often expressed by former A.G. Edwards chairman and president Benjamin Edwards III, according to brokers. “I can’t remember ... ever suing anyone in the 45 years I was there,” he said. A.G. Edwards is “afraid the West Coast is really vulnerable” to losing some of the 700 or so of its reps in the region, according to a Southern California broker at the firm, who asked not to be identified. Mr. Lee was a 21-year veteran of A.G. Edwards, a board member, and widely liked by A.G. Edwards reps. He was responsible for 72 A.G. Edwards offices but will now be building up a West Coast presence for his new firm, according to a statement from Stifel. The day Mr. Lee left, Mr. Bagby got on a hastily arranged conference call with the firm’s West Coast brokers and — to the surprise of many — expressed hard feelings that Mr. Lee had left. Mr. Bagby said Mr. Lee “didn’t give [the merger a] fair chance and that the firm had supported [the executive] during an illness” that had sidelined him for a period of time, said the Southern California rep, who monitored the conference call. “That was a boneheaded thing to say,” the rep said. “Instead of wishing him well ... he did a tirade.” That’s when brokers “got on the squawk box and ripped into [Mr. Bagby],” the broker said. Many A.G. Edwards reps say they feel betrayed by top management for selling the firm after promising for years to stay independent. Mr. Lee said Mr. Bagby hired him. “I told him when I resigned that he’s the reason I came, the reason I stayed, and now he’s the reason I’m leaving.” Mr. Lee said he did not want to work at a “big bank.” War of words But A.G. Edwards doesn’t want Mr. Lee working for Stifel. On the day he resigned, he got a letter from an outside lawyer retained by A.G. Edwards warning him that he may have broken the law and demanding that he immediately sign and return a sworn statement saying he was not contacting A.G. Edwards employees. Simultaneously, Doug Kelly, A.G. Edwards’ director of law and compliance, sent a letter to Mr. Lee and Ron Kruszewski, Stifel’s chief executive, that also raised legal concerns and complained that Stifel had taken the “highly extraordinary step of targeting A.G. Edwards’ brokers for recruitment.” Mr. Kelly was referencing a letter Mr. Kruszewski had sent to A.G. Edwards brokers in June inviting them to join his firm. In that letter, Mr. Kruszewski said that the reasons Wachovia and A.G. Edwards officials had given for combining the firms were “hogwash.” Four days later, Mr. Kruszewski responded directly to Mr. Bagby, accusing the A.G. Edwards chief of being hypocritical. Wachovia, Mr. Kruszewski said, had tried to recruit both Stifel and Ryan Beck & Co. Inc. brokers after Stifel acquired the Florham Park, N.J.-based company in February. A.G. Edwards itself grabbed the public-finance group of Baltimore-based Legg Mason Inc. after Stifel acquired Legg Mason’s capital markets business in December 2005. Mr. Kruszewski also claimed that Mr. Bagby tried to intimidate A.G. Edwards employees into staying at the firm, while others faced job losses, in contrast with Mr. Bagby, who will remain through 2009 as chairman of the combined organization, with a raise and guaranteed bonus of $4.5 million each year, plus a $7.5 million stock award. “Congratulations,” Mr. Kruszewski wrote. See you in court At the same time Mr. Kruszewski was blasting back, A.G. Edwards filed a lawsuit against Mr. Lee. The suit, filed in California Superior Court, County of Sacramento, accuses Mr. Lee of recruiting his brother, James Lee, then an A.G. Edwards branch manager, to come to Stifel while John Lee was still employed at A.G. Edwards. It also claims that 48 hours before resigning, John Lee attended a confidential meeting about potential A.G. Edwards branch closures on the West Coast. The lawsuit seeks a permanent injunction against John Lee to prevent him from recruiting A.G. Edwards employees. A hearing on the suit is set for Sept. 28, according to Mr. Lee’s attorney, Kenneth C. Mennemeier, a partner at Mennemeier Glassman & Stroud LLP in Sacramento. He said the court declined A.G. Edwards’ request to grant a temporary restraining order against his client. “Mr. Lee is inappropriately using confidential, merger-related information to recruit our financial consultants,” Justin Gioia, an A.G. Edwards spokesman, said in a statement. Mr. Gioia declined further comment. “I didn’t take anything with me except my memory and my relationships,” Mr. Lee said. Mr. Lee and Mr. Kruszewski this month held several meetings with A.G. Edwards brokers and branch managers in California. “I think everyone [at A.G. Edwards] would at least give [Mr. Lee] an ear,” the A.G. Edwards broker said. Dan Jamieson can be reached at djamieson@crain.com.