Stifel, Nicolaus & Co. was ordered to pay over $7 million in legal fees after losing a raiding and breach of contract claim against a former Indianapolis-based team of brokers who left the firm, Financial Advisor reported.
Stifel, based in St. Louis, claimed the team had “spent months planning and orchestrating” a raid of its Indianapolis branch office and then solicited their clients to their registered investment advisor, Sapient Capital, in early 2023. The team, which changed its name from the KCP Group to Sapient Capital after leaving Stifel, was accused of trying to move its Stifel client accounts serviced by that office to the new firm.
But a Financial Industry Regulatory Authority arbitration panel ruled that Stifel failed to prove its case and held the firm accountable for the fees under an Indiana state law that allows a claimant to be liable for legal costs if the action was brought in “bad faith” or the party continued to litigate an action that had become “frivolous, unreasonable or groundless.”
The FINRA panel of two public and one non-public arbitrators denied claims by both sides for damages. But it awarded the Sapient advisors $7 million in attorneys’ fees and $120,951 to Lee Equity Partners for discovery costs. Stifel also will have to pay the costs of the hearing fees, $45,675.
The advisors sought over $4.1 million for defamation, $7 million for breach of the Protocol for Broker Recruiting and $50 million plus interest in punitive damages, attorneys’ fees and costs.
In its claim, Stifel sought $44 million in damages as it accused the team of advisors of several violations, including unfair competition and raiding; tortious interference with business relations; breach of fiduciary duty and duty of loyalty; unjust enrichment; misappropriation of confidential information; and breach of the Protocol for Broker Recruiting.
The brokers denied the allegations and filed a counterclaim against Stifel alleging, among other things, interference with business relationships, unfair competition and breach of contract.
“[Stifel] made it more difficult for clients to transition their accounts and encouraged others not to do so” because of its allegations, the brokers claimed. Sapient contended Stifel brought the legal action “to serve the anger of its highest officer,” and continued the battle “even when doing so has been to the detriment of Claimant’s own financial interests.”
Wayne Turner of Hoover Hull Turner LLP, the law firm that represented the brokers, said in an email, “The FINRA arbitration process concluded with the three-person panel publishing its unanimous award in favor of the respondents, partners of Sapient Capital LLC. We believe this outcome reflects the merits of the case, and we are grateful for the diligence of the FINRA panel.”
Stifel did not respond to a request for comment.
The decision followed another recent arbitration ruling against Stifel Financial. A FINRA arbitration panel ordered the firm to pay a family $132.5 million for misrepresenting the risk of complex structured notes, causing what their lawyer called “staggering” losses.
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