Schwab loses $15 million arbitration case against Morgan Stanley

Tue Aug 26, 2014 6:07pm EDT

A Charles Schwab Investment branch is seen in Washington January 19, 2010.  REUTERS/Jim Young

A Charles Schwab Investment branch is seen in Washington January 19, 2010.

Credit: Reuters/Jim Young

(Reuters) - Charles Schwab Corp. has lost a $15 million arbitration case against Morgan Stanley, which it accused of improperly recruiting brokers from a Schwab San Francisco branch who left with confidential trade secrets.

The decision by a Financial Industry Regulatory Authority arbitration panel in San Francisco, dated Monday, ends a dispute that began in 2012.

Schwab alleged that Morgan Stanley had maliciously organized an "actionable raid" of its West Portal Avenue branch in San Francisco, according to the ruling. Schwab also accused Morgan Stanley of inducing Schwab brokers to breach their contracts.

A Schwab spokesman was unable to immediately comment. A Morgan Stanley representative was not immediately available to comment.

Claims involving the practice of so-called "raiding" are typically made when a firm loses 30 percent to 40 percent of the production - the amount brokers generate in revenue during a year - from a branch office to another firm in one swoop or over a short period of time, according to lawyers.

The ruling did not identify the brokers who left Schwab.

While the arbitrators denied Schwab's claims "in their entirety," they ordered Morgan Stanley to pay Schwab $72,000 in sanctions. The reasons for the sanctions are unclear.

The three-member panel, as is customary, did not explain the reasons for the decision.

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