The latest legal fight between J.P. Morgan Securities and Wells Fargo Clearing Services over an ex-broker's book of business will move on in court without a temporary restraining order impeding the advisor's practice.
On March 3, District Judge Madeline Cox Arleo denied J.P. Morgan Securities’ request for a temporary restraining order, preliminary injunction and expedited discovery against Taulant Cela, a former J.P. Morgan employee who the firm alleges solicited clients and employees to his new employer, Wells Fargo Clearing Services. Despite the rejection of the restraining order, the legal battle is likely far from over. J.P. Morgan can still seek damages through the arbitration case it filed with industry regulator FINRA, which could take up to 20 months, according to
The lawsuit reveals the
“When a financial advisor leaves a firm, clients often get caught in the middle of what amounts to a messy divorce,” said Brent Burns, a New Jersey attorney who represents clients in employment law issues. “A squabble now playing out in the wealth management industry suggests that many of those splits could get messier.”
Thomas Lewis, attorney for Cela, said he and his client are pleased with the court’s decision. J.P. Morgan and Wells Fargo representatives didn’t immediately reply to a request for comment.
The case
In a complaint filed to the United States District Court of New Jersey on Feb. 28, J.P. Morgan alleged that Cela, who resigned from J.P. Morgan on Feb. 4 and immediately joined Wells Fargo, breached an employment agreement by soliciting clients and employees and taking the company’s confidential information to his new employer.
“More than a dozen clients have informed J.P. Morgan that Defendant called them almost immediately upon joining Wells Fargo asking the clients to meet with him at Wells Fargo or outright asking the clients if they would be interested in transferring their accounts to him at Wells Fargo,” according to the complaint.
Cela, a 15-year veteran broker, serviced more than 400 J.P. Morgan households and clients with about $122 million in total assets under management, according to the complaint. J.P. Morgan claimed more than $8.5 million in assets was transferred from the company to Cela at Wells Fargo.
In a memo against J.P. Morgan’s motion, Cela’s attorneys said J.P. Morgan's request failed to carry its heavy burden of obtaining the extraordinary relief of a temporary restraining order as it lacks credible evidence and facts to show solicitation and actual loss.
“It fails to even identify which clients were contacted, when they were contacted or what was allegedly said. These deficiencies are among the reasons why courts have denied J.P. Morgan’s requests for injunctive relief against its departing advisors,” the memo says.
The case adds to a string of conflicts between J.P. Morgan and departing advisors. In January, a federal judge denied the company’s request for a temporary restraining order against Timothy Chad Logsdon, one of its former advisors who left to join an independent wealth management firm,
Broker Protocol
The continuing clashes between brokerages and advisors raised doubts on the effectiveness of a long-established industry convention — the Broker Protocol, founded in 2004 by wirehouses Smith Barney, Merrill Lynch and UBS.
The protocol says that registered representatives may take information such as client names, addresses, phone numbers, email addresses and account titles that they serviced while at the firm but are prohibited from taking any other documents or information.
“While the Protocol provides a substantial benefit to a departing broker, it does not immunize the departing broker from all liability to his former firm,” Paul Wood, an attorney at the Kansas City law firm Polsinelli, wrote in an intelligence report about the Broker Protocol.
At least 2,057 firms are active members of the Broker Protocol, including J.P. Morgan Securities, which joined in 2014, and Wells Fargo Clearing Services, which joined in 2006, according to
The protocol has seen some pushbacks in recent years when Smith Barney and UBS, two of the founding members of the agreement, withdrew from it in 2017. While J.P. Morgan remains a participant, it offered “further clarification” on the protocol and said the agreement applies only to “registered representatives in the J.P. Morgan Advisors line of business” with the title of “wealth partner” or “wealth advisor,” according to a letter J.P. Morgan sent to Capital Forensics, the law firm that administers the agreement.
“No other divisions, businesses or employees of JPMS or its corporate affiliates or parents are covered by the Protocol,” the letter says. “That means that registered representatives working in Chase Wealth Management, JPMorgan Private Bank, or JPMorgan Chase & Co. are not covered by the Protocol.”
At J.P. Morgan, Cela worked as a private client advisor, which, according to J.P. Morgan’s letter, means he is not covered by the Broker Protocol.
Neither J.P. Morgan’s complaint nor Cela’s opposition memo mentioned the Broker Protocol. Some advisors and other wealth management professionals have called for the outright end to the industry standard.
“The wealth management industry and the regulations that guide its practices should move toward a modern framework that allows advisors to freely move to another firm and makes it easy for their clients to move with them,” Kevin Armstrong, the general counsel and chief legal officer at Culver City, California, law firm Docupace,
