An irreverent Wall Street Blog
Schwab Seeks $6 Million In Solicitation Dispute
March 12, 2015
It's an old story on Wall Street. Employees get happy feet. Sometimes it's a short honeymoon and the relationship falls apart quickly; sometimes it's more akin to the seven-year itch. Whatever the circumstances that prompted the break-up, it's often a matter of corporate culture as to how the end plays out. As I see it, an enlightened employer will appreciate the contributions of a top producer and wish him or her well with their new job -- always leaving the door open for a return and maintaining a collegial atmosphere to the end. Other employers view the departure of an employee as the opening volley in a scorch-the-earth war. In the biz, you have employer firms that fall into each camp. There's the departing handshake or the overhand right. Consider this recent FINRA arbitration that pits Charles Schwab & Co. against three former employees.
Case In
Point
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March
2013, Claimant Charles Schwab & Co., Inc., asserted against former
registered representative Respondents Blom, Rosso, and Mack causes of action for
breaches of contract, the duty of loyalty and fiduciary duty; misappropriation
of trade secrets; tortious interference with contracts and business relations;
unfair competition; and civil conspiracy.
Claimant Schwab alleged that former
employees Rosso and Blom had resigned, joined Clarity
Financial LLC, and wrongfully solicited Schwab's clients to transfer
their accounts. -- and that the client contact/solicitation was in violation of executed Confidentiality, Nonsolication and Intellectual
Property Ownership Agreements that prohibited for 18 months contacting or soliciting any Schwab clients
serviced by Respondents. Further, Claimant alleged that
Respondent Mack aided Respondents Rosso and Blom's wrongful inducement and solicitation. Accordingly, Claimant Schwab
sought a "Specific Performance Injunction" plus compensatory and punitive
damages, attorneys' fee, and costs.
At the hearing. Claimant Schwab requested:
- damages of 4% of Schwab client assets that were diverted pursuant to improper solicitation or misuse of confidential information. This number was apparently determined to be $2,241,752.92; and/or
- 75% of the most recent full year's total annual compensation paid by Claimant to each employee solicited or induced to leave its employment. This number was apparently determined to be $283,403.85; and/or
- lost profits of $3,088,216.00; and
- attorneys' fees of $511,958.05.
In the Matter of the
FINRA Arbitration Between Charles Schwab & Co., Inc.,
Claimant, vs. Mark Layne Blom, Richard Michael Rosso and
Connie Mack, Respondents (FINRA Arbitration
13-00784, March 4, 2015).
Respondents generally denied the
allegations and asserted various affirmative defenses. Respondents requested
attorneys' fees in the amount of $536,628.51 pursuant to the terms of the
contracts between the parties.
Injunction
Resolved
In September 2013,
the parties reached an agreement to resolve the injunctive portion of this case
and, thereafter, proceeded to a hearing on the merits.
Decision
The FINRA Arbitration Panel
found that:
- Respondent Rosso is liable to and shall pay to Claimant Schwab $60,000.00 in compensatory damages with 5% post-judgment interest from and including 30 days from the date of service of this Award until paid;
- Respondent Blom is liable to and shall pay to Claimant Schwab $10,000.00 in compensatory damages with 5% post-judgment interest from and including 30 days from the date of service of this Award until paid;
- All claims against Respondent Mack were denied with prejudice; and, as such, Claimant Schwab is liable to and shall pay to Respondent Mack $130,000.00 in attorneys' fees with 5% post-judgment interest from and including 30 days from the date of service of this Award until paid
Bill Singer's
Comment
According to online FINRA
BrokerCheck records as of March 12,
2015:
- Claimant Rosso was first registered with Schwab in 1998 and resigned in September 2012 and became an Investment Adviser with Clarity in November 2012.
- Respondent Mack was first registered with Schwab in 2000 and resigned in August/September 2009 and became an Investment Adviser at Clarity in November 2009.
- Respondent Blom was first registered with Schwab in 2000 and resigned in April 2012 and became an Investment Advisor at Clarity in May 2012.
To my eyes, as a Wall Street
veteran of over three decades, all that I see are three former Schwab
employees, each with about at least a decade's worth of service to that firm.
You'd like to think that there is some value placed upon such service by a
FINRA member firm. Why industry employers are so quick to impose non-solicitation and
non-compete clauses is baffling -- not that I don't appreciate
the sound business rationale, I do; however, sometimes employers in a
competitive industry need to be better attuned to the nature of their industry
and the tenor of the times. Given what I do for a living and the many telephone
calls that I receive from disgruntled registered representatives, I am well
aware that certain firms have cultivated a reputation for throwing their
employees under the bus or coming on like gangbusters after someone resigns. That tough-guy reputation may be worthwhile at times; however, more often that
not, "word" gets around and those looking to join a new firm
may often mark such a difficult employer off their
list.
At the end of this employment arbitration, Schwab comes off as a brokerage firm flexing its muscles and daring its former employees to step into the ring. That's well and fine when you deliver the
knock-out punch; however, in this arbitration, Schwab is left on the short-end of a split decision and comes off more like a cream-puff than a contender.