For the second time in a week, JPMorgan is suing a former advisor for alleged violations of a nonsolicitation agreement after moving to a rival firm.
JPMorgan's securities division, J.P. Morgan Securities, sued its ex-broker Matthew McCrea in federal court in Nevada on June 11 over allegations that he violated various contract provisions after leaving on April 23 to join Wells Fargo in Las Vegas. The suit came just four days after JPMorgan sued another of its former advisors, Laura Sullivan, over similar allegations.
Similar to its action against Sullivan, JPMorgan accuses McCrea of violating a nonsolicitation contract he had entered into with its subsidiary Chase Wealth Management on joining the firm in May 2018. The contract clause barred him from making express attempts to win former clients' business for a year after leaving, according to the filing.
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JPMorgan said at least 10 of its customers have reported that McCrea has reached out to them after joining Wells Fargo. According to the firm's lawsuit, McCrea had worked with roughly 224 client households with $106 million in total assets under supervision.
"Unfortunately, it appears that McCrea's solicitation efforts have proved successful, as approximately eleven JPMorgan households, with assets totaling approximately $4.3 million,
already have transferred their accounts to McCrea at Wells Fargo," the suit says.
Both JPMorgan and Wells Fargo declined to comment on the dispute.
Cases point to books built on bank referrals
As in the suit against Sullivan, the case against McCrea makes much of the fact that he was a private client advisor who built his book of business from referrals from JPMorgan's banking business. Most of his clients came from contacts he made while working at the firm's branch in Henderson, Nevada, according to the suit.
That's a stark contrast, the suit says, to the majority of advisors who build their books of business more or less on their own.
"McCrea sat at his desk at the JPMorgan Chase bank branch and was introduced to hundreds of existing bank clients (with or without investment accounts) to offer and provide access to investment opportunities through Chase Wealth Management," according to the suit. "As a Private Client Advisor, McCrea was not expected to engage in cold calling or attempt to build a client base independent of referrals from JPMorgan."
Nearly identical language appears in JPMorgan's suit against Sullivan. JPMorgan notes that McCrea had industry experience before joining it in 2018; FINRA's BrokerCheck page lists previous stints at Axa Advisors, Fidelity and Merrill.
However, according to the suit, he provided no names when given the opportunity on an attachment to his nonsolicitation agreement to list any clients he was bringing with him to JPMorgan.
According to the suit, "McCrea was permitted to identify all client relationships that he had established prior to commencing employment with JPMorgan, and those pre-existing relationships would be carved out from the non-solicitation restriction in the agreement."
Rick Rummage, the CEO of the recruiting firm The Rummage Group, said it is true that most private client advisors at JPMorgan build the majority of their books of business through bank referrals.
"Some do choose to go outside the bank and bring in new assets," he said. "But why would you do that when you can rely on your network internally and go after the internal clients?"
The need to heed legal advice and not 'go rogue'
Rummage said most advisors seek out legal advice when they change firms, and that usually includes recommended ways to avoid liability for violating nonsolicitation clauses.
In the McCrea case, "If he followed the instructions of legal counsel, both his personal attorney and Wells Fargo's attorney, it's going to be hard for JPMorgan to bring a case against him," Rummage said. "But if he went rogue, then he possibly could be found guilty and JPMorgan Chase could be awarded money."
Also similar to the Sullivan suit, JPMorgan accuses McCrea of violations with confidential client information. McCrea called some of his former clients on their cell phones, for instance; JPMorgan considers cell phone numbers to be confidential information.
Of the 10 clients who told JPMorgan of McCrea's alleged solicitation attempts, most said he asked to set up meetings and told them they should move their accounts over to him at Wells Fargo. One customer said McCrea appeared to have access to some of his JPMorgan account information at Wells Fargo, according to the suit. Several clients also said McCrea promised to lower their management fees if they moved their assets over, JPMorgan alleges.
Lawsuits may deter other advisors from leaving
Among other violations, JPMorgan's suit accuses McCrea of breach of contract, breach of fiduciary duty, breach of the duty of loyalty and unfair competition. As in the previous legal action against Sullivan, JPMorgan is seeking a temporary restraining order against McCrea to bar him from any further solicitations of his former clients. The order would remain in place pending the resolution of the dispute by a Financial Industry Regulatory Authority arbitration panel.
In another case recently filed by JPMorgan, the firm accused another former private client advisor, named Patrick Durham, of similar violations after he left to join Ameriprise. JPMorgan later dropped the case after Durham's lawyers submitted a motion arguing that the firm had agreed to resolve disputes with its brokers in FINRA arbitration rather than the regular court system.
Rummage said firms will sometimes see several advisors leave in quick succession and respond with lawsuits to send a message to others who might be thinking of following suit.
"It's just to deter future ones from doing it," he said. "It doesn't typically work that well, but sometimes it does."
