Welcome to Financial Advisor IQ
Follow

Morgan Stanley Spells It Out for Ex-Employees: Keep Your Contractual Obligations ... (Or Else?)

By Rita Raagas De Ramos January 29, 2018

Morgan Stanley has won four temporary restraining orders out of five complaints it's filed against former advisors since it exited the Protocol for Broker Recruiting in November. That’s four victories and one case still pending in court. And the latest TRO was granted just one day after the complaint was filed.

Morgan Stanley’s exit from the broker protocol was seen by industry experts as a stern warning to broker-dealers planning to leave the wirehouse and to the firms planning to hire or absorb these individuals. The clear message, lawyers say, is that doing so would lead to payback in the courts or in arbitration.

And the wirehouse didn’t seem to waste any time confirming such suspicions to the industry by filing TRO motions as swiftly as the same day of an advisor’s resignation, such as in the case against former advisor John Louis Fitzgerald. In that case, the TRO was granted by Judge Renée Marie Bumb of the U.S. District Court for the District of New Jersey 29 days after the complaint was filed.

The latest known complaint, against former registered representative Daniel Abel, was filed on January 22 and the TRO was granted by Judge Marcia Morales Howard of the Jacksonville division of the U.S. District Court of the Middle District of Florida one day after the complaint was filed.

Abel was employed by Morgan Stanley from March 7, 2014 until January 12, 2018. Following his resignation from Morgan Stanley, he launched his own advisory firm, Abel Wealth Management.

The TRO against Abel appears to be the swiftest granted so far. Two other TROs were granted in 15 days by a circuit court judge in Miami-Dade County, Fla. and in two days by a district court judge in Chicago, Ill. One case, filed on January 17, remains pending in South Bend, Ind.

The TRO order against Abel, which is 14 pages in length, is also significantly more comprehensive than previous orders (four pages at most) handed down to ex-Morgan Stanley advisors since November. It cites specific relevant rules and multiple examples of cases that served as precedents for the court’s findings.

When asked to comment about the latest TRO granted against Abel as well as the previous TROs granted against the three other advisors, a spokeswoman for Morgan Stanley replied: "Morgan Stanley expects all former employees to comply with their legal and contractual obligations to the Firm."

FA-IQ reached out to Abel for this article, but he had not responded as of this writing.

The latest complaint

In its complaint filed on January 22, Morgan Stanley accuses Abel of breach of contract, misappropriation of trade secrets, tortious interference and violation of the Florida Deceptive and Unfair Trade Practices Act. The firm argues that Abel has solicited Morgan Stanley clients to transfer more than $18 million in assets to Abel Wealth Management.

Morgan Stanley says in its complaint that Abel was initially employed as a financial advisor but became a member of the support staff, serving financial advisor Michelle Paul after "an unsuccessful transition." The firm alleges in its complaint that Abel slid his resignation letter under the office door of his manager, Albert Toto III, while Toto was out of town, causing his resignation to be undiscovered until after the extended Martin Luther King Jr. Day holiday weekend.

To support its breach of contract claim, Morgan Stanley cited Abel’s employment contract, a Morgan Stanley Wealth Management Joint Production Arrangement Policy and the Morgan Stanley Code of Conduct, which the firm says were all signed by Abel. The firm says the employment agreement -- signed by Abel on March 7, 2014 -- barred Abel from taking confidential customer information (including names and contact information) and soliciting Morgan Stanley customers. The firm says the joint production document -- signed by Abel on August 29, 2017 -- contains a non-solicitation provision that specifically states Abel "will not solicit or attempt to solicit, directly or indirectly, Morgan Stanley customers for a period of one year following the end of his employment." The firm says the code of conduct required Abel to protect the confidential information of Morgan Stanley customers, even after his employment with the firm ended.

According to the firm, a "forensic review" by Morgan Stanley’s information technology department of Abel’s emails, work and cellphone logs, office printing and downloading activities, and calendar entries supposedly revealed Abel took and stored the confidential information of Morgan Stanley customers.

"Upon confirmation and belief, in the days leading up to his resignation, Abel contacted Morgan Stanley clients by phone," the complaint says. "At least one of these clients confirmed almost immediately following Abel’s resignation that the client had decided to transfer their accounts from Morgan Stanley to Abel’s new independent firm."

Morgan Stanley also cites a LinkedIn post written by Abel as evidence he violated the non-solicitation provision, noting that "several" of Abel’s LinkedIn connections are Morgan Stanley clients.

In the LinkedIn post made two weeks ago and still visible in his LinkedIn activity log as of this writing, Abel wrote: "After 15 years of working for Big Wall Street Firms, today I left Morgan Stanley to open my own practice as an Independent Investment Advisor Representative. Please contact me at my new office cellphone number 904-312-7890. I would love to tell you more about it."

Morgan Stanley's complaint says the conduct "violates the non-solicitation provision contained" in the joint production policy, "which prohibits the defendant from soliciting any of plaintiff’s clients.”

In explaining the importance of the confidential information and trade secrets, Morgan Stanley argues -- as it has in past TRO complaints -- that client retention is crucial to the firm’s success. The wirehouse says it spends considerable time, money and resources to identify, service and maintain clients to secure personal and financial information, as well as to generate new leads for prospective clients. The firm says a critical component of its continued success is building and retaining relationships with clients, particularly high net worth individuals. It argues that it will "suffer irreparable harm" because of the loss of customer relationships if Abel is allowed to "continue to misappropriate" confidential information and trade secrets.

As it has done in past cases, Morgan Stanley sought the TRO pending the results of an arbitration case it filed before Finra’s arbitration forum. Filing for a TRO before a court automatically expedites a pending Finra artbitration case, with an arbitration hearing scheduled for within 15 days of the court’s order, according to the regulator’s rules.

The latest TRO

On January 23, Marcia Morales Howard, a judge in the Jacksonville, Fla. division of the U.S. District Court of the Middle District of Florida, granted Morgan Stanley’s TRO motion against Abel. She also directed Abel to respond to the emergency motion by January 30 and for Morgan Stanley to reply to Abel’s response by February 2.

Howard scheduled a hearing on February 6 to ascertain whether the TRO should be converted into a preliminary injunction.

In her ruling, Howard identifies several rule provisions in the Federal Rules of Civil Procedure and the U.S. District Court of the Middle District of Florida that support Morgan Stanley’s arguments in its complaint.

She also cites multiple examples of cases that serve as precedents in the findings that led her to grant the TRO. For example, citing the case of All Care Nursing Services Inc. v. Bethesda Memorial Hospital Inc., she says for a court to grant injunctive relief, the petitioner must show the substantial likelihood of success on the merits; that irreparable injury will be suffered without an injunction; the threatened injury outweighs whatever damage the proposed injunction would cause the opposing party; and that the proposed injunction would not be adverse to the public interest.

(iStock Photos)

"The Court finds that Morgan Stanley has established substantial likelihood of success on the merits of these claims," Howard says in her ruling. "Morgan Stanley has sufficiently alleged that Abel’s disclosure and use of its confidential client information or trade secrets would cause immediate and irreparable harm to Morgan Stanley’s business relationships."

She adds that the threat to Morgan Stanley of not granting a TRO outweighs potential damages to Abel and the TRO will serve the public’s interest in protecting legitimate businesses from the misappropriation of confidential information and resources.

In issuing the TRO, Howard acknowledges "Abel has not yet been given an opportunity to be heard," stressing that there is still no decision on the request for preliminary injunctive relief.

While the TRO is in force, the court orders Abel and other relevant persons to restrain from contacting or soliciting Morgan Stanley customers serviced by Abel or who had become known to him while he was an employee of the firm, and from using, disclosing or transmitting records that are in any way related to Morgan Stanley customers.

The case continues.