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Schwab accuses ex-employee of calling client after opening RIA

Charles Schwab Corp. signage is displayed on the door of an office building in New York, U.S., on Thursday, April 12, 2018. Charles Schwab Corp. reported earnings per share for the first quarter that beat the average analyst estimate, with 443,000 new accounts, the highest quarterly level in 18 years, chief executive officer Walt Bettinger said in a statement. Photographer: Christopher Lee/Bloomberg
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Advisor John VanEngelenhoven left his employer, Charles Schwab, to open an RIA that custodies with TD Ameritrade Institutional. Now he faces a FINRA arbitration and potentially a preliminary injunction as Schwab accuses him of soliciting at least one of the company’s clients.

VanEngelenhoven departed Schwab in September after a 14-year career there, according to FINRA BrokerCheck. A few months later, he opened his own firm, Verity Financial, in Austin, Texas. The RIA was officially registered with the SEC in March and custodies with TD Ameritrade, according to its Form ADV. It currently reports no assets under management.

Schwab claims the advisor solicited at least one client when he called him and told him about the new firm, according to the complaint, which was filed in federal court in Texas. The San Francisco-based brokerage and custodian is now seeking a preliminary injunction, asserting that VanEngelenhoven breached his contract and misappropriated trade secrets, according to the complaint.

VanEngelenhoven did not respond to a request for comment. Schwab spokesman Pete Greenley declined to comment on this particular case, but noted in an email that Schwab “expects that its representatives will comply with their contractual and legal obligations concerning customer information,” and that, if necessary, the company will not hesitate to enforce the obligations in court or an arbitration proceeding.

Greenley did not respond to a request for comment regarding whether or not employees are permitted to solicit clients if they open an RIA that custodies with Schwab.

VanEngelenhoven is among several ex-Schwab advisors who have been taken to court this year over client solicitation. Just last week, the custodian and brokerage filed a complaint against Andy Saeger who left to work for BMO Harris’s wealth management division.

A recent Schwab complaint against a former employee proved unsuccessful. In a FINRA arbitration at the end of July, a panel denied the brokerage’s claims against its former employee, Greg Jones, who had left the firm for J.P. Morgan Securities in November.

The brokerage had sought an injunction, damages and attorneys’ fees and costs. It also accused Jones of breach of contract, misappropriation of trade secrets, breach of the duty of loyalty, tortious interference with contract and prospective business relations, unfair competition, civil conspiracy and aiding, abetting and participation in breach of duty of loyalty and other unlawful conduct, according to the FINRA arbitration award.

The arbitration panel also prohibited Schwab from seeking to extend the preliminary injunction that had been granted in June by a federal court in Texas. FINRA arbitration awards set no precedent for cases that follow.

A hearing date for VanEngelenhoven’s arbitration was not included in the court filing.

A TD Ameritrade spokesman declined to comment on the preliminary injunction.

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