(Refiles to add Aug 26 in dateline)
By Suzanne Barlyn
Aug 26 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 information.
The ruling by a Financial Industry Regulatory Authority
arbitration panel in San Francisco, dated Monday, ends a
Schwab accused Morgan Stanley of maliciously organizing an
"actionable raid" of the branch. Schwab also accused Morgan
Stanley of inducing Schwab brokers to breach their contracts.
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.
"We strongly disagree with the panel's decision and are
evaluating our legal options in this situation, a Schwab
spokesman said. "The claims in this case were compelling,
including instances of taking proprietary information,
manufacturing evidence, and operating a steady raid on staff and
clients resulting in significant damage to Schwab."
A Morgan Stanley spokesman declined to comment on the ruling
and did not immediately respond to requests to comment on
While the arbitrators denied Schwab's claims, they ordered
Morgan Stanley to pay Schwab $72,000 in sanctions. The
three-member panel, as is customary, did not provide reasons for
The ruling did not identify the brokers who left Schwab.
Schwab has a reputation in the securities industry for
taking legal action against brokers and the firms that hire
them, said Thomas Lewis, a lawyer in Lawrenceville, New Jersey
who advises brokers about moving between firms. The cases
typically arise against brokers who take clients' contact
information or send out announcements about their affiliation
with new firms, said Lewis, who was not involved in the case.
Schwab can use that strategy because it does not participate
in an industry agreement intended to minimize legal disputes
when brokers switch firms, known as the Protocol for Broker
Recruiting, Lewis said.
The agreement allows brokers to bring very limited
information when switching firms, but only if both firms
involved in the transition participate. Details typically
include client names, telephone numbers and email addresses.
Schwab, last month, filed a lawsuit in a Seattle federal
court against former Schwab adviser Christopher Canorro and the
firm he started in May, Basilica Wealth Management in Bainbridge
Island, Washington. Canorro, whose firm employs two other former
Schwab advisers, breached contracts with Schwab, in part, by
taking confidential client information, Schwab said in its
"Schwab's claim is a strategy of intimidation designed to
protect its parochial business model at the expense of fair
competition," said Clinton Marrs, Canorro's lawyer in
Albuquerque, New Mexico. "There are no merits and we are
confident that the court will agree."
(Additional reporting by Elizabeth Dilts; Editing by Grant