Smith Barney is not letting at least one of its brokers break away without a fight.
The Citigroup Inc.-owned brokerage behemoth has hit a former adviser with litigation claiming that he improperly pursued clients and used confidential information after he resigned from the New York-based firm last month.
Brian Dillon, an adviser who left Smith Barney on May 15 to join the adviser business of Minneapolis-based Ameriprise Financial Inc., allegedly breached a contract he signed with Smith Barney in 2007 when the firm assigned him a number of clients from another Smith Barney adviser who was retiring from the firm.
Smith Barney, according to court documents, claims that he recently attempted to convince many of these clients to transfer their accounts to Ameriprise, even though he agreed two years ago not to solicit these clients if he changed firms.
“Dillon did not have any relationship with these customers prior to servicing them and could not have solicited them immediately after resigning from Smith Barney unless he had taken these customers' information with him to Ameriprise,” Smith Barney claimed in a lawsuit that was filed in federal court in New Jersey on May 19. The suit requested that a temporary restraining order be placed on Mr. Dillon directing him, as well as Ameriprise, to return any confidential information to Smith Barney.
Smith Barney simultaneously filed an arbitration claim with the Financial Industry Regulatory Authority Inc. of New York and Washington making the same allegations, and it appears that an arbitration hearing will take place this month to resolve the issue.
Smith Barney claims it will be “irreparably harmed by the disclosure of its trade secrets, customer lists and other Smith Barney confidential information,” it noted in the suit, which also named Ameriprise as a defendant.
“No price tag can be placed on the destruction of the benefits Smith Barney has accrued from such efforts, and it is impossible to determine how much Smith Barney stands to lose as a result of [Mr. Dillon's] misconduct,” Smith Barney's suit claims.
His attorneys at Atlanta-based law firm Fisher & Phillips LLP did not return calls for comment. Ameriprise spokesman Benjamin Pratt also was unavailable to discuss the litigation.
Attorneys representing Smith Barney directed calls to spokesman Alex Samuelson, who declined to comment on the suit.
Steve Insel, a lawyer at Jeffer Mangels Butler & Marmaro LLP in Los Angeles who specializes in the brokerage industry, noted that Smith Barney has seen its sales force shrink since revealing that it will merge its brokerage operations with Morgan Stanley this year.
“Maybe they feel they need to send a message to other brokers who are thinking about leaving too,” Mr. Insel said.
In its quarterly earnings filings, Citigroup noted that its overall brokerage head count declined by 7%, or nearly 1,100 advisers, during the first three months of the year. At the end of March, the company employed 12,659 advisers.
The suit against Mr. Dillon comes just several months after Smith Barney made similar claims against four brokers in Pennsylvania who left to join Janney Montgomery Scott LLC in Philadelphia.
In that suit, which was filed in February, Smith Barney claimed that the brokers improperly took private client information to their new firm “despite their written assurances that they had complied with the "protocol for broker recruiting.'” This protocol agreement allows advisers to take certain client information with them when they change firms.
The suit against Mr. Dillon, however, makes no mention of the protocol; Ameriprise is not one of the nearly 160 firms that have signed on to this industry recruiting agreement, according to an attorney who focuses on the protocol pact.
Mr. Dillon allegedly violated an agreement he signed under Smith Barney's Franchise Protection Program.
This program allows an adviser at the firm to receive clients from a retiring adviser, and the two share commissions generated by the clients.
Attorneys noted that it's unclear how that latest litigation will play out. But two of the advisers who moved to Janney Montgomery Scott have since been cleared of these allegations, and an attorney representing them told
InvestmentNews in March that the claims were “nothing more than intimidation by Smith Barney to keep its reps under -control.”
E-mail Mark Bruno at [email protected].
