Merrill fires back at $870 million defectors

A federal judge has granted a temporary restraining order against four former Merrill Lynch advisers who managed a combined $870 million before jumping to UBS Wealth Management last month in Gainesville, Fla.
Bank of America Merrill Lynch filed suit in U.S. District Court of the Northern District of Florida accusing the advisers of “sabotage,” misappropriating trade secrets and breaching their contracts. The wirehouse leveled a number of accusations at the former employees and said that, upon changing firms, the advisers provided incorrect contact info for their clients, including a $10 million account, taking contact information on inherited accounts in violation of protocol and making disparaging remarks about the firm. The complaint did not provide a specific dollar amount for damages from the advisers, who produced $4.6 million in revenue last year.
“Merrill Lynch has shown that it is entitled to a temporary restraining order to prevent defendants from taking further action to solicit their former clients,” Judge Mark E. Walker wrote in the decision. “Merrill Lynch has provided evidence that defendants acted in bad faith in the course of their departure by retaining electronic devices owned by Merrill Lynch, manipulating client contact information in Merrill Lynch’s records, and soliciting support staff to join them in their move in contravention of various agreements.”
NO NEW CONTACTS
The temporary restraining order prohibits the advisers from initiating new contact with clients that they learned of while at Merrill Lynch, asks them to return any customer information and to not solicit any Merrill Lynch employees to resign.
The advisers — Michael Carr, Jeffrey Hogue, Jeffrey Rizzo and Kirk Ruth — all denied the allegations in a response to Merrill Lynch’s request for a restraining order, according to court documents. The advisers said that they didn’t manipulate any phone numbers, but had only updated their database or deleted incorrect numbers.
A UBS spokesman, Gregg Rosenberg, did not return a request for comment.
Recruiters and attorneys interviewed for this story said that anecdotally Merrill Lynch has not gotten tougher on those who left, but all firms are already on the lookout for any violations they can enforce.
“Firms in general are sensitive to this kind of issue,” said Marc S. Dobin of the Dobin Law Group in Jupiter, Fla. “Gainesville is not a big place, so as a result it’s not surprising that there’s a fight because there’s probably a limited number of high net worth households.”
BAD BLOOD
There was already some bad blood between the firm and the advisers, according to court documents.
Merrill Lynch said once the advisers left, they told their clients that Bank of America Merrill Lynch was dictating investment strategies to its advisers that are required to be followed without concern for customers’ best interest, that the firm was charging excessive fees and that the Merrill Lynch office in Gainesville would be closing.
The advisers, who denied making those remarks in court filings, said Merrill Lynch was not above using scare tactics of its own.
They said that the firm had made inaccurate statements that certain positions couldn’t transfer to UBS and had to be liquidated.
“Even more troublesome are the second category of communications containing partial information about a client’s accounts, which may include misleading partial screenshots,” an attorney for the advisers, Ernest W. Irons of Schuyler Roche & Crisham PC, wrote in a letter to Merrill Lynch filed as evidence. “This information is being improperly utilized to suggest poor performance, or inappropriate fees or handling of accounts by the departed advisers.”
The judge sympathized with the advisers on that point. Merrill Lynch is to advise any clients who call the old office that the advisers are now employed by UBS but “shall not disparage defendants during the course of such inquiries, and shall provide appropriate defendant’s new contact information upon request.”
A Bank of America spokesman, William Halldin, declined to comment.
A hearing was scheduled Friday to decide whether to enforce a preliminary injunction that would extend the retraining order.