Wells Fargo didn’t just inherit a 15,000-strong brokerage force when it acquired Wachovia Securities. It also found itself lumped with a string of court cases that Wachovia had brought against its former advisors who had moved to Stifel Nicolaus following Wachovia’s takeover of AG Edwards in early 2008.
One such case in Florence, S.C. has turned ugly.
Frank Brand, Stephen Jones, Marvin Slaughter and George Stukes, long-time AG Edwards brokers, left Wachovia to join Stifel in June 2008. Wachovia immediately brought a claim against the brokers in the district court in South Carolina, accusing them of taking confidential client information with them to Stifel.
At the time Stifel had not signed the Protocol for Broker Recruiting, which permits advisors to take basic client information when they switch firms. Wachovia sought an injunction on the brokers to prevent them from contacting their clients. While the judge did not award this, he did order the advisors to return all client information to Wachovia.
The advisors believe his decision was the result of a DVD produced by a private investigator that Wachovia hired to follow them. They say that during the hearing Wachovia’s attorney, Kathryn Bedke, told the judge had had seen the DVD and it showed footage of Jones and Slaughter driving between the Wachovia and Stifel offices transporting boxes of documents.
As it was late on a Friday afternoon, the judge decided to take her word for it and did not order the DVD to be played. The defendants, who have since seen the DVD, say it only shows Jones carrying one case of bottled water and a single plastic shopping bag containing a can of Pledge into his new office.
All of this came out during the subsequent FINRA arbitration. In December, the FINRA arbitration panel found in favor of the defendants and ordered Wachovia to pay $1.1 million in attorney’s fees and costs, as well as $15,000 in damages to the brokers. However, perhaps more surprising was the panel’s directive that the parties must return to the court where the initial hearing was held in June 2008 and have the award confirmed.
The advisors’ attorney, Joseph Dougherty of Buchanan Ingersoll & Rooney, said it’s the first time in his career that he has been told to go back to the original court to have an arbitration award confirmed. He believes the panel did it in order to inform the court about Wachovia’s “flagrant misrepresentation” during the initial hearing.
But in another twist, last month Wachovia requested that the court vacate the arbitration award and relieve it from paying the $1.1 million in costs and damages to the advisors. According to Dougherty, the firm also refused to respond the arbitration panel’s claims about the misrepresentations they allegedly made at the initial hearing because they were “too vague.”
In a reply brief from the defendants filed Wednesday, the advisors’ attorneys, set out the misrepresentations it believes Wachovia made during the first hearing.
“Counsel for Wachovia waived a DVD around the courtroom, misrepresented its contents and the failed to disclose to the Court that she had not even bothered to look at it,” the claim said. “Meanwhile the defendants’ careers and livelihoods were at stake. This lawsuit may have been just another day in the office to Wachovia, but it certainly was not for the defendants.”
The defendants also claimed that information Wachovia claimed to be confidential or proprietary was in conflict with its own procedures for bringing on new recruits.
They said Wachovia provides its new recruits with a "Transition Briefcase," which is a discrete flash drive onto which recruits are instructed to input their customers’ names, addresses, phone numbers and account titles. They allege that the firm then uses this information to send packages to the recruits’ customers immediately after he or she joins Wachovia, informing them about the recruit’s new employer.
Despite this, the defendants claim, “Wachovia feigned outrage in this Court…that the Defendants would input the same information onto flash drives and use it once they joined Stifel.”
The defendants say Wachovia instructs all of its recruits to bring their customers’ basic contact information with them, regardless of whether their prior firm had signed the protocol.
Wells Fargo [WFC] now has two weeks to reply to the defendants’ latest brief before the judge makes his final decision.
A spokeswoman for Wells Fargo said, "While [Wells Fargo Advisors] disagrees with the statements that Stifel's counsel has made concerning the pending litigation between the parties, we believe that the appropriate forum to address the issues in this matter is the United States
District Court where this matter is pending."
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access