Broker Accuses Morgan Stanley, Retired Advisor of “Smear Campaign” as TRO Battle Escalates
Morgan Stanley Wealth Management and a veteran broker it previously fired traded legal salvos this week as part of an increasingly hostile client solicitation dispute in a federal court in Oregon.
Sevcik, now with regional brokerage D.A. Davidson in Medford, Oregon, said he also has been the “victim of a social media smear campaign” that was “engineered” by the firm and the retired broker, James Maddux, according to a court filing. Maddux, a former U.S. Air Force intelligence officer who worked as an advisor until retiring in 2017, and his wife, Linda, in social media posts attached to Sevcik’s affidavit accused the broker of theft and “criminally” stealing retirement income.
“I am presently the victim of a social media smear campaign engineered by Morgan Stanley, James Maddux and others who are spreading lies and misinformation about my character and the circumstances surrounding my departure from Morgan Stanley,” the broker said. “The reality is that I am, and have been, conducting myself with integrity.”
At issue is a $160 million book Sevcik inherited from Maddux, that is bound by strict non-solicits under Morgan Stanley’s Former Advisor Program. The firm had argued in its July 30 complaint that if the accounts leave, Maddux will no longer receive the payments he is entitled to for agreeing to leave his book at the firm.
The dispute was set in motion after Morgan Stanley uncovered “tens of thousands” of dollars worth of commissions that were miscoded under Sevcik’s individual production number but should have been shared with Maddux and fired the broker, according to its initial complaint filed last week. The firm has fired over a dozen brokers over the issue and earlier this year updated its internal coding systems to restrict brokers.
Morgan Stanley in seeking a temporary restraining order also accused Sevcik of misleading clients after his departure by telling them he was the “fall guy” for a regulatory investigation. Sevcik in the Wednesday filing denied the claim and said he told his former customers that he had made an “honest mistake” about coding transactions. He had also offered to reimburse Morgan Stanley for the amount at issue but said the firm declined the offer.
Sevcik’s lawyer, Nancy L. Hendrickson with O’Hagan & Meyer in Chicago, did not respond to a request for comment. Sevcik, who started his career at Morgan Stanley predecessor Smith Barney in 2008, according to BrokerCheck, could not immediately be reached for comment. He has worked at Montana-based D.A. Davidson since July 26, according to BrokerCheck.
A spokeswoman for D.A. Davidson previously declined to comment citing policy not to discuss personnel matters.
A Morgan Stanley spokeswoman declined to comment.
Morgan Stanley has gone to court once before–unsuccessfully– in seeking to defend Maddux’s former accounts. It two years ago attempted to handcuff another former member of Maddux’s five-broker Cedar Ridge Group team, David Sayler, who left to join UBS.
Morgan Stanley also on Wednesday bolstered its own case with a declaration from George Kane, the complex manager for the firm’s Portland market, who said he learned just “several hours” prior to the filing about an apparent mass mailing that Sevcik had sent. The mailing had also gone to Maddux, who is himself among the clients inherited by Sevcik through the FAP.
The mailing, a postcard that announced Sevcik had joined D.A. Davidson’s Medford office, was evidence that Sevcik had in fact initiated contact with customers in violation of the FAP agreements, Morgan Stanley’s Kane said.
Sevcik had said in an earlier response to Morgan Stanley’s claims that he had only been responding to in-bound client communications as allowed under the inherited account agreements.
A hearing has not yet been scheduled, according to the court docket.
The case reflects the thin line that brokers must tread in both making announcements and even after customers reach out with questions about the broker’s move, according to Brady Hermann with Maurice Wutscher in Dedham, Massachusetts.
“If Sevcik simply provided his new contact information, that likely would not be considered a solicitation,” said Hermann, who was not involved in Sevcik’s case. “However, if during the conversation he discussed the benefits of moving their account, or the benefits his new employer can provide that Morgan Stanley cannot, that could certainly be viewed as a solicitation.”
Sevcik, as part of his defense, also filed a motion to compel arbitration, a move Hermann said is unusual in TRO cases. Firms are required by Financial Industry Regulatory Authority rules to seek a TRO first in court before they can proceed in arbitration.
“The motion to compel is overkill and could possibly risk upsetting a judge,” Hermann said. “It certainly is an uncommon approach.”