Smith Barney seeks restraining orders against four ex-reps
Smith Barney, facing a rising number of broker departures from its branches, this month hit four ex-reps and a rival broker-dealer with a lawsuit.
Smith Barney, facing a rising number of broker departures from its branches, this month hit four ex-reps and a rival broker-dealer with a lawsuit seeking the return of the reps’ client information.
Such lawsuits, which seek temporary restraining orders against advisers, were commonplace in the brokerage industry before major wirehouse firms in 2004 reached an agreement that allowed reps and advisers to take a limited amount of client information when switching firms.
Smith Barney was one of the original signers of the agreement, known as the “protocol for recruiting brokers,” which has sharply curtailed the number of such lawsuits against brokers, industry sources say.
The lawsuit comes as Smith Barney is seeing its brokerage force shrink. In the fourth quarter of 2008 alone, the broker’s parent, Citigroup Inc. lost 970 reps and advisers from its wealth management groups, of which Smith Barney is the largest.
Recruiters and executives from rival firms said the Smith Barney reps and advisers are continuing to leave the firm this year as it prepares to take the minority stake in a joint venture with Morgan Stanley, also of New York. Citigroup will exchange Smith Barney for a 49% stake in the new firm, dubbed Morgan Stanley Smith Barney, and a $2.7 billion cash payment.
A Smith Barney spokesman would not comment about the possibility of other lawsuits against brokers in flight.
“We don’t comment on active litigation, but believe strongly in the broker protocol, and will always work to ensure that participants live up to its terms,” said Smith Barney spokesman Alexander Samuelson.
On Friday, Smith Barney filed an amended lawsuit in federal court in Philadelphia against four brokers: Bernadette Holland and Amy Villani, who worked in a Bethlehem, Pa., branch, and William Meyer and Marcy LePrell, who worked in Lancaster, Pa. Earlier this month, those four joined regional broker-dealer Janney Montgomery Scott LLC of Philadelphia, which was also named in the lawsuit, an earlier version of which was filed on February 12.
The complaint alleges the four brokers took with them “customer files and information, despite their written assurances that they had complied with the ‘protocol for broker recruiting’, which expressly prohibits them from taking such files.”
Janney Montgomery Scott agreed to the broker protocol in November. The agreement allows reps to carry a limited amount of client information — including clients’ names, addresses, phone numbers and e-mail addresses — to their new firm. Janney spokeswoman Karen Shakoske said the firm does not comment about litigation.
Last year was a difficult year for Smith Barney and Citigroup, as it was for many major financial institutions.
The Treasury Department this week is reportedly in discussion with Citigroup to increase its ownership stake of the troubled bank to 40%. Meanwhile, Citi lost 11% of its adviser force in 2008, dropping its head count to 13,765 reps and advisers at the end of December.
Citi’s wealth management groups’ net client asset flows dropped steeply at the end of last year, with the firm losing $17 billion in client assets in the fourth quarter, after increasing asset flows by $3 billion the previous quarter.
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