Finra: Morgan Stanley must pay Schwab $1.2 million over broker recruiting violation

Arbitrators rule that Morgan Stanley violated trade secrets by "maliciously and willfully" appropriating a Schwab client list

Nov 3, 2017 @ 5:24 pm

By Mark Schoeff Jr.

A Finra arbitration panel awarded $1.2 million to Charles Schwab & Co. Inc. in a case against Morgan Stanley Smith Barney involving the recruitment of a Schwab broker.

In a Nov. 2 award, the arbitrators found that Morgan Stanley violated the California Uniform Trade Secrets Act by diverting Schwab clients of a broker called "Mr. Q." The broker's customer list, which included contact and financial information, were deemed trade secrets.

"MSSB misappropriated [Schwab's] trade secrets during the recruitment, hiring and employment of Mr. Q., and did so maliciously and willfully," the award states.

Schwab claimed that Morgan Stanley "orchestrated the departure and wrongful actions of Mr. Q, [Schwab's] former employee, by inducing Mr. Q" to take his customer list and clients to Morgan Stanley.

The arbitrators said that Schwab did not sign and was not bound by the protocol for broker recruiting. The case was filed in March 2016. Morgan Stanley announced this week that it is withdrawing from the protocol.

Morgan Stanley did not immediately respond to a request for comment. The firm's penalty breaks down as $360,000 in compensatory damages, $289,524 in attorneys' fees and $600,000 in punitive damages.

"We're pleased with Finra's decision in this matter," said Schwab spokesman Rob Farmer. "We take these issues related to confidentiality, client solicitation and intellectual property very seriously. We intend to pursue breaches when they occur through appropriate legal action."


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