A.G. Edwards & Sons Inc. has sued more brokers who left the firm in the wake of its recent merger with Wachovia Securities LLC.
In the latest instance, the firm sued Chris and Marlene Fowler, a husband-and-wife team in Houston, after they left for Morgan Stanley of New York last month with two assistants.
A.G. Edwards' suit seeks to stop the pair from contacting accounts or recruiting the firm's employees.
The St. Louis-based firm's request for a temporary restraining order against the Fowlers was denied this month, but the charges are still flying as A.G. Edwards pursues a preliminary injunction against the duo. An injunctive hearing is set for Oct. 23.
The Fowlers claim that they followed the recruitment protocol used by most major broker-dealers, which allows brokers to take clients' names, addresses, e-mails, phone numbers and account titles without fear of legal action as long as they notify the firm and leave a list of clients with account numbers and titles prior to leaving. Representatives aren't supposed to be sued if they make good-faith efforts to follow the protocol.
Both A.G. Edwards and Morgan Stanley are signatories to the protocol.
The suit "doesn't seem right," said Vance Christopher, a shareholder at Crain Caton & James PC in Houston, who represents the Fowlers.
Following the protocol "should prevent this kind of lawsuit," he said, adding, "we're a little mystified" about why A.G. Edwards sued.
Tony Mattera, a spokesman for Richmond, Va.-based Wachovia, had no comment about the litigation.
A.G. Edwards, in a court filing, said the protocol doesn't apply to the Fowlers because their move should be considered "raiding."
The firm's Houston-branch manager Kent Mitchell claimed in an affidavit that the Fowlers "stole 24 legal file drawers of client documents" that included Social Security numbers and personal financial data. He said that the reps "clandestinely" removed the files after hours, prior to leaving the firm.
Mr. Mitchell also claimed that the Fowlers had more than $110 million of client assets under management, and that they generated about $1 million.
The Fowlers, for their part, said in an affidavit that the file drawers to which Mr. Mitchell was referring contained nothing more than prospectuses, office supplies and exercise equipment.
The two brokers said that Mr. Mitchell had been branch manager for just three months and had no knowledge of their business or record-keeping procedures.
He claimed that the reps re-signed abruptly. But the Fowlers said he knew that they were researching other firms — an activity even encouraged by Wachovia chief executive Daniel J. Ludeman during a conference call with A.G. Edwards reps.
The Fowler case is almost a carbon copy of another dispute. In that case, A.G. Edwards sued four reps who left the firm's Marco Island, Fla., branch after they, too, went to Morgan Stanley last month.
Michael Bressan, an associate at Abel Band Chartered in Sarasota, Fla., who represents the brokers — William Coen, Stephen Macko, Terrence McCreanor and John Stoll-meyer — didn't return calls seeking comment.
Jordan Becker, a partner at Paduano & Weintraub LLP of New York, the law firm A.G. Edwards retained to handle the Florida case as well as the Fowler suit, declined to comment. The law firm specializes in "raiding" cases.
In the Florida case, A.G. Edwards claims that Morgan Stanley took the entire Marco Island branch, a satellite of Edwards' Naples, Fla., office. Together, the departed brokers handled $568 million in assets and produced $2.8 million in gross dealer concessions, the firm claims.
Like the Fowlers in Houston, the Florida reps claimed they followed the recruitment protocol.
Late last month, the brokers agreed to abide by a preliminary injunction pending an arbitration hearing. The injunction orders them to follow the protocol and not recruit from A.G. Edwards.
The Florida reps left identical resignation letters informing the firm that they were following the protocol. But Jon Price, the assistant manager in A.G. Edwards' Naples office, claimed in an affidavit that the brokers had "misappropriated" confidential inform- ation, including Social Security numbers the reps then used to fill out transfer forms.
The brokers had also recently printed out client reports, but those reports are now missing, he said.
Mr. McCreanor said in a court filing that Mr. Price's assertion about the automated customers-account-transfer-service forms is "totally false," and that the client reports were de-stroyed after use. A.G. Edwards' claims against the brokers are based on duties employees have to an employer, and its employment agreement that forbids brokers from leaving with client information or recruiting from the firm.
However, A.G. Edwards doesn't make its brokers sign non-compete clauses, a policy Wachovia continued in the recruitment packages it gave A.G. Edwards reps.
The litigation is unusual for A.G. Edwards, which has always told brokers that they own their books. Some observers think the firm may be attempting to intimidate reps into staying.
In his affidavit, Mr. Price told the court that unless the brokers are prevented from using client information, other A. G. Edwards brokers "will be encouraged to engage in the same reprehensible conduct."
Wachovia officials have said publicly that they expect to lose no more than 3% of those A.G. Edwards brokers who produce more than $250,000.
The cases in Florida and Houston have also raised questions about whether the recruitment protocol still works.
"In some ways, the honeymoon is sort of over" for the protocol, said David Erb, a partner at Fisher & Phillips LLP in Philadelphia, who isn't involved in the disputes. Firms are scrutinizing whether brokers stick to the letter of the pact, he said.
A total of 32 firms have joined in the agreement, including Merrill Lynch & Co. Inc., Citigroup Inc.'s Smith Barney brokerage unit and UBS Financial Services Inc., all of New York, and Raymond James Financial Inc. of St. Petersburg, Fla.
Dan Jamieson can be reached at [email protected].
