Four financial advisers and an associate who left Merrill Lynch Wealth Management for Morgan Stanley Smith Barney LLC last month have run afoul of the protocol for broker recruiting.
The five individuals — Christopher Baker, Henry Hagood, Tina Littlegate, Richard Vise and Stephen Vise — entered into a consent order April 27 forcing them to return customer information that they took with them, and agreeing not to solicit their former clients to join them at Morgan Stanley. The consent order was issued by the U.S. District Court for the Northern District of Alabama, and the matter is now in arbitration with the Financial Industry Regulatory Authority Inc.
According to court documents, an office manager in Merrill's Birmingham (Ala.) Southeast office found Mr. Baker and Mr. Hagood printing out quarterly review reports for about 35 clients April 14, two days before the team members tendered their resignations.
According to the court papers, a Merrill forensics expert examined the advisers' computers and determined that Mr. Hagood used a removable storage device to access information on the “Vise” team's clients, as well as on clients served by other advisers in the office.
CUSTOMER STATEMENTS
Other members of the team allegedly downloaded and printed out customer statements and other information at various times, including after the team had resigned from the firm.
Merrill spokeswoman Selena Morris didn't return calls seeking comment.
“The protocol is very specific,” said David Gehn, a securities lawyer and partner at Gusrae Kaplan Nusbaum PLLC.
“Name, e-mail, address, telephone number and account title. That's all you can take,” Mr. Gehn said.
The adviser team returned documents and other information to Merrill lawyers last week and presented their technology devices for scrubbing, according to the consent order.
The advisers are allowed to keep the basic information on clients allowed under the protocol, and though they aren't permitted to initiate contact with their Merrill clients to transfer their accounts to MSSB, they can do so if the client contacts them.
“Morgan Stanley probably paid a boatload for these advisers, and now they're shooting blanks,” Mr. Gehn said. “They'll have to figure out a way to generate new business and make good with Morgan Stanley.”
Joseph Alonso, an attorney with Brock Clay Calhoun & Rogers LLC representing the five advisers, wasn't immediately available for comment.
LIMITED DAMAGES
Morgan Stanley Smith Barney spokeswoman Christine Pollak e-mailed the following statement: “We are pleased that Merrill Lynch reached an agreement with the advisers, which was approved by the court, that will move this case out of court and into arbitration, and are optimistic that this matter will be resolved satisfactorily.”
One thing working in the advisers' favor is that the damages suffered by Merrill are likely limited, given the speed with which the wirehouse was granted a court order against the advisers, Mr. Gehn said.
He expects that the arbitration case will be settled, but if Merrill doesn't relent and permit them to reach out to old clients, the team could have a very rocky transition to Morgan Stanley.
“Honor the protocol,” Mr. Gehn said. “If you don't, it can be devastating to your business.”
aosterland@investmentnews.com
