Merrill Lynch’s request for a temporary restraining order against a team of advisors who left to launch their own firm was denied by a federal judge in Georgia, Wealth Management reports.
Judge Victoria Calvert in U.S. District Court in the Northern District of Georgia ruled in favor of the advisors who formed registered investment advisory firm OpenArc Corporate Advisory.
Merrill Lynch had filed a lawsuit against OpenArc, along with its platform provider and minority investor Dynasty Financial Partners, and custodian Charles Schwab, requesting injunctive relief and a temporary restraining order on the RIA’s work with clients. Merrill Lynch accused OpenArc, Dynasty, and Schwab of running a “premeditated corporate raid” to lure advisors from the Merrill to form a $129 billion RIA.
The team of a dozen brokers, which operated at Merrill Lynch as the Global Corporate and Institutional Advisory Services business, asked the court to deny Merrill’s motion to enjoin them from contacting their former customers. The group argued that Merrill’s allegations that their departure violated employee and industry agreements are false and based on “supposition and conjecture.”
“Merrill Lynch is engaging in these improper and deceptive business practices in a desperate attempt to retain customers who desire to maintain a relationship with us,” wrote one of the team’s leaders, Erik M. Bjerke, in an affidavit. The advisors contended that the potential harm to OpenArc and the advisors outweighs any threatened harm to Merrill, and that their actions did not constitute a corporate raid under the Protocol for Broker Recruiting.
The advisors asked the court to stay the case, compel FINRA arbitration and deny a temporary restraining order and injunction.
In its motion to the court, Merrill Lynch sought an injunction barring the defendants from, among other actions, soliciting or contacting Merrill clients or prospects they came to know while at the firm or encouraging Merrill employees to leave. The judge’s ruling will now allow OpenArc to continue communicating with clients.
“Today’s court decision is a watershed moment for the wealth management industry,” Dynasty founder and CEO Shirl Penney said in a statement. “The judge found no evidence to show that the Protocol for Broker Recruitment was not followed. The court also noted that OpenArc, Dynasty and Schwab acted in good faith.”
In a statement, a Merrill spokesperson said the firm would continue its battle during FINRA arbitration. “We look forward to vigorously pursuing this matter in arbitration and are confident that a FINRA panel will agree that the defendants engaged in a corporate raid and conspired to poach our employees and clients,” the spokesperson said.
If you are looking to move from one firm to another, planning to go open up or join an RIA, looking to sell your firm or grow through acquisition or bringing on new advisors, the attorneys at Hyman Cotter PC have the experience to guide you through the process to protect your interests. Regardless of whether the transition involves protocol or non-protocol firms, we will properly advise you so that you can focus on your transition and we will work to limit the risks you face during this transitional period. For more information, contact Hyman Cotter PC at 312-291-4600 or through our online contact form for a free consultation.
