Morgan Stanley dodges $15 million raiding claim

Schwab's charge that wirehouse improperly hired its brokers is rejected by arb panel

Aug 26, 2014 @ 3:22 pm

By Mason Braswell

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Morgan Stanley & Co. has dodged a $15 million complaint alleging that the firm violated Finra and state laws when it recruited financial advisers from Charles Schwab & Co. Inc.

A Financial Industry Regulatory Authority Inc. arbitration panel denied Schwab's claims that Morgan Stanley raided one of its offices in San Francisco, according to a notice posted to Finra's website today.

Schwab had alleged that Morgan Stanley had engaged in unfair competition with an “intentional and with malice orchestration of an actionable raid” on the Schwab office.

Schwab also alleged that Morgan Stanley had induced its employees to breach their contract by taking confidential customer information and soliciting employees to resign or recruit other Schwab employees while still employed at the firm.

Schwab had asked the panel to award $15 million in compensatory damages and for the panel to enjoin Morgan Stanley from “inducing or permitting any Schwab employees to use or disclose Schwab's confidential and trade secret information for an unlawful purpose” and asked for Morgan Stanley to return customer documents.

The panel ultimately denied all of Schwab's claims. As is typical of a Finra award, the panel did not provide reasoning for its decision.

While the panel denied Schwab's claims, it also imposed sanctions of $71,528 on Morgan Stanley, but did not provide an explanation.

Schwab initially filed the claims with Finra in 2012. It was decided after 20 hearing sessions which took place in June and August this year.

A Morgan Stanley spokesman, James Wiggins, declined to comment.

In an emailed statement, a Schwab Spokesman, Greg Gable, said the decision is an “anomaly” and that the firm is evaluating its options.

“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,” Mr. Gable wrote. “[We] will pursue an aggressive course of legal action should similar situations occur.”

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