* Claims Idaho brokers produced more than half of branch
* One veteran Smith Barney broker also served as branch
* Stifel brokers said they abided by industry protocol
NEW YORK, May 29 Morgan Stanley has asked an
Idaho court to prohibit three brokers it says generated over
half the revenue at its Coeur d'Alene branch from contacting
former colleagues about joining them at a Stifel Nicolaus & Co.
office they have set up in the same city
The office's producing branch manager, Michael Armon, and
two associates resigned from Morgan Stanley on May 9,
causing "upset, anxiety, insecurity, uneasiness and concern" at
"a relatively small office" that had only six advisers,
according to a May 17 filing in U.S. District Court for the
District of Idaho by the brokerage. The brokers who left oversaw
about $229 million of client assets and generated about $1.7
million of revenue annually, the filing said.
Morgan Stanley seeks return of all company and client
documents from the advisers and asked the court to ban them from
destroying any records or documents that could be used in an
arbitration proceeding that is being arranged. It also asked to
enjoin them from contacting the three brokers and their support
staff still working at the Morgan Stanley office.
Brokerage firms fight fiercely to retain and recruit top
brokers and requests for restraining orders are common. The
Idaho case, however, brings up some unusual issues, lawyers
said. Most significantly, it could help distinguish between
illegal "raiding" of a branch and acceptable recruiting
practices that are largely orchestrated by branch managers.
Those practices were codified several years ago in a
"Protocol for Broker Recruiting" that big firms initiated to
lower their legal costs and that has now been signed by more
than 800 firms, including Morgan Stanley and Stifel. It allows
brokers who give notice to take with them only the names,
addresses, phone numbers, e-mail addresses and account type of
clients in return for not being sued.
The protocol does not absolve one firm from decimating a
branch office of another, however, according to a lawyer who
helped write the document and sought anonymity since he has
worked with both Morgan Stanley and Stifel.
"The whole point is to allow brokers to move with their
clients as long as they don't take impermissible data. Does it
matter if they got a suggestion from a branch manager to make a
move?" said Patrick Burns, a lawyer who specializes in helping
advisers move from large firms.
Armon, who has worked for more than 34 years at Morgan
Stanley and its Smith Barney predecessor, said in a filing that
he did not violate the producing branch manager employment
agreement he signed in 2008 with Smith Barney.
Armon's Smith Barney employment agreement also prohibits him
as a branch manager who has clients from soliciting employees
within 100 miles of their new branch for 18 months.
The issues relating to raiding are likely to be decided by
arbitrators in a Financial Industry Regulatory Authority forum
once the Idaho judge rules on Morgan Stanley's request for a
temporary restraining order on the brokers.
Steven Andersen, a Boise-based lawyer who represents the
brokers, said the court has orally denied Morgan Stanley's
requests regarding the return of data but has temporarily
enjoined them from contacting current Morgan Stanley employees.
He also said that the parties have begun negotiations to
pick an arbitration panel to decide further issues.
Stephen Thomas, the Boise attorney representing Morgan
Stanley, did not return a call for comment.
Stifel, which is based in St. Louis and is part of Stifel
Financial, has defended itself in more than six
arbitrations in recent years involving alleged abuses in
recruiting brokers from Wells Fargo Advisors.