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Morgan Stanley Continues Aggressive Litigation Against Departing Advisers Post "Prexit" (Broker Protocol Exit)

By Katherine S. Bowles, Esq of Shustak Reynolds & Partners, P.C. posted on Friday, September 21, 2018.

Kara Siegel

Kara Siegel

Senior Attorney

It has been almost a year since Morgan Stanley abruptly exited the Protocol for Broker Recruiting (“Protocol”), and in that time it has implemented an aggressive legal strategy against departing advisors.  On Wednesday, Morgan Stanley filed a federal complaint against a team of six departing advisors less than a week after they resigned from Morgan Stanley to join Stifel Nicolaus & Co., and was then able to drag them into court just two days later for a hearing on Morgan Stanley’s Emergency Motion for a Temporary Restraining Order and Preliminary Injunction. Morgan Stanley concurrently filed a companion arbitration against the team in FINRA.

Morgan Stanley requested extremely broad relief by asking the court to block the $660-million team from soliciting any Morgan Stanley client (excluding family members) and from using any records, documents or information relating in any way to any Morgan Stanley clients, business and marketing strategies, or business operations. Morgan Stanley alleges in their complaint the team has been calling clients and asking them to transfer their accounts to Stifel, as well as reaching out to clients on social media. Morgan Stanley, however, has not produced any direct evidence of these alleged violations.

The team is comprised of Ronald Ouwenga, Brian Thomas, Myron Hendrix, Michael Bruner, Jeff Schimmelpfennig, and Zachary Birkey, who worked out of Morgan Stanley’s Bourbonnais, Illinois office, a relatively small financial services market about an hour outside Chicago. In their opposition papers, the team adamantly denies they did anything wrong, and calls out Morgan Stanley for unilaterally changing the terms of the team’s employment agreements by exiting the Protocol without giving the team anything in exchange for stripping them of Protocol protections or giving them the option to voluntarily leave Morgan Stanley before the Protocol exit was finalized.  

Morgan Stanley claims the team’s alleged client solicitations violate a joint production agreement that was entered into during the short period of time between Morgan Stanley announcing their intention to exit the Protocol and the date the exit was finalized. The court has not yet entered an order on Morgan Stanley’s emergency motion.

This is just the newest in a long line of cases Morgan Stanley has initiated in the last year against ex-Morgan Stanley advisors who moved to rival firms. Morgan Stanley, however, is not alone in implementing this sue-first-ask-questions-later strategy. JPMorgan Chase has filed similar lawsuits this year, and many more are expected to follow as more firms make their exit from the Protocol.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We routinely represent broker-dealers and financial advisors in arbitrations, financial advisor transitions, broker protocol disputes and related matters. Please contact us today for a confidential, complimentary consultation.

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