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Besieged Ex-Morgan Stanley FA: You Encouraged Me, Now You're Suing Me for It?!

By Rita Raagas De Ramos February 2, 2018

An ex-Morgan Stanley advisor currently being sued by the wirehouse for -- among other things -- allegedly misappropriating trade secrets when he supposedly took confidential client information, is hitting back against his former employer.

Daniel Abel, through his lawyers, filed January 30 his "response in opposition" to an injunctive relief sought by Morgan Stanley against him before the Jacksonville division of the U.S. District Court of the Middle District of Florida. While the injunctive relief case remains pending, a TRO was granted by Judge Marcia Morales Howard on January 23. Howard has scheduled a hearing for February 6 to ascertain whether the TRO should be converted into a preliminary injunction.

Abel’s response claims, among other things, that the injunctive relief should not be granted because even though Morgan Stanley is now claiming the dissemination of client information amounts to misappropriating trade secrets, the wirehouse in fact encouraged the practice for years.

Morgan Stanley’s position that "all customer contact information is a trade secret, or even confidential, is without merit considering that it has, for years, been permitting and encouraging the use and dissemination of this very type of information," Abel’s lawyer submits.

The response adds that Morgan Stanley should not be granted injunctive relief because "despite its handwringing over Mr. Abel’s alleged conduct, it has for years condoned and encouraged that very same conduct."

The other arguments put forward by Abel’s lawyers include:

  • Morgan Stanley was a member of the Protocol for Broker Recruiting at the time Abel signed his contracts with the firm.
  • Abel was not given meaningful opportunity to review the Financial Advisor Employment Agreement he was told to sign on his first day of employment on March 7, 2014.
  • The Morgan Stanley Wealth Management Joint Production Arrangement Policy signed by Abel on August 29, 2017 states that the agreement will be governed by New York state laws (as opposed to Florida, where the wirehouse brought suit).
  • One of the customers identified by Morgan Stanley in its complaint is Abel’s uncle, while two others were clients who followed him to Morgan Stanley from his previous employer, Merrill Lynch (and therefore outside the scope of any agreement with the wirehouse).
  • Much of the information Morgan Stanley says is confidential was taken by Abel from public sources.

FA-IQ reached out to Morgan Stanley for comment on these assertions, but the wirehouse declined to respond to Abel’s allegations.

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.

In its complaint filed 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 Abel has solicited Morgan Stanley clients to transfer more than $18 million in assets to Abel Wealth Management.

Morgan Stanley says in its complaint 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 in its complaint Abel’s employment contract and the joint production agreement cited in Abel’s response, as well as the Morgan Stanley Code of Conduct.

The wirehouse’s complaint says the employment agreement barred Abel from taking confidential customer information (including names and contact information) and soliciting the firm’s customers. The complaint says the joint production document contains a non-solicitation provision that specifically states Abel "will not solicit or attempt to solicit, directly or indirectly," the firm’s customers "for a period of one year following the end of his employment." The complaint says the code of conduct required Abel to protect the confidential information of the firm’s customers, even after his employment with the firm ended.

Ron Edde, San Diego, Calif.-based president and CEO of recruitment firm Millennium Career Advisors, says that based on his conversations with advisory firms and advisors, the developments surrounding the firms that have exited the broker protocol and the advisors leaving those firms are “among the most closely-watched developments in the industry."

He believes that broker-dealer firms, especially UBS and Citigroup, and advisors are closely monitoring the suits filed by Morgan Stanley against “certain advisors” that have left the firm since November. The results of these lawsuits and the Finra arbitration of those cases will have a “significant impact” on the advisory industry and advisor movements, he says.

Morgan Stanley has won four temporary restraining orders out of five complaints it’s filed against former advisors since it exited the broker protocol in November. That’s four victories and one case still pending in court.

Broker protocol

Abel isn’t the first former Morgan Stanley advisor to bring up that the wirehouse was previously a signatory of the broker protocol to fight an injunctive relief against the firm. Former Morgan Stanley advisor John Louis Fitzgerald used the same argument in a complaint filed by the wirehouse on December 8 before the U.S. District Court for the District of New Jersey.

Through his lawyers, Fitzgerald fought back, arguing that just because Morgan Stanley changed its mind about its broker protocol membership doesn’t mean he should be punished for actions that departing advisors did for years. A TRO was granted in that case, and both Morgan Stanley and Fitzgerald agreed to the adjournments of a hearing on the injunctive relief, leaving the case to be decided by a Finra arbitration panel.

(iStock Photos)

Employment agreement

Abel’s response says that on his first day of work at Morgan Stanley, he was "unexpectedly presented" with the Financial Advisor Employment Agreement and told that signing it was a requirement of his employment.

Joint production agreement

The response claims that while Abel did sign a joint production agreement, he "eventually exited this arrangement, choosing instead to be a senior registered associate."

Even if the joint production agreement holds, the response claims Abel didn’t contact customers or clients for the purposes of "selling products or services that are competitive" with Morgan Stanley or "causing accounts to be transferred in a manner competitive" with the wirehouse.

The response further claims that Abel "did not remove or retain any lists, documents or storable information created or compiled" by Morgan Stanley. "The only document that Mr. Abel retained was an account liquidation form. The document is boilerplate," it adds.

The response also argues that New York state law should be applied in the joint production agreement because it "will be governed, construed and enforced in accordance with the laws of the state of New York." The response argues that "New York adheres to the public policy in favor of free competition and, therefore, enforces restrictive covenants only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not duly harsh or burdensome to the one restrained."

Uncle, customers from Merrill Lynch

The response claims that the "only cognizable allegations of customer relationships" made by Morgan Stanley are that of Abel’s uncle and two clients from his pre-Morgan Stanley days. The response claims "neither" of those relationships are "protectable" because of Abel’s relationship with his uncle and because the two clients "have trusted Mr. Abel since his time with Merrill Lynch."

Public sources

The response claims the client information in question is "information readily discoverable through public sources, such as telephone books, trade publications, referrals and social contacts," and thus, they are "not protectable."

The response adds that "an employee’s recollection of information pertaining to the needs and habits of a particular customer is not actionable."

The response claims Abel "has retained no physical lists" compiled by Morgan Stanley and "much of the information" the wirehouse alleges is confidential "was compiled by Mr. Abel himself through public sources."

The case continues.