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."

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Female leaders highlighted as future of financial advice

InvestmentNews recognized 20 Women to Watch for their efforts to advance the financial advice industry.

Latest news & opinion

ESG options scarce in 401(k) plans

There's growing interest among plan participants, but reluctance to add funds that take into account environmental, social and governance factors persists.

Envestnet acquires MoneyGuide for $500 million

Deal will allow Envestnet to deepen integrations between MoneyGuide and its other wealth management solutions.

Genworth move could signal big shift in distribution of long-term-care insurance

Insurers may turn to direct-to-consumer sales only, bypassing brokers and insurance agents.

Morgan Stanley threatens to pull out of Nevada over state's fiduciary rule

Wirehouse says it would not be able to work there under state's current proposal.

Advisers see college admissions scandal as tip of the iceberg

Parents' conduct is described as 'disgusting' but not surprising given the current state of higher education.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print