J.P. Morgan Takes Chicago RIA Cresset to Court in Dispute Over Raiding of Private Bankers
J.P. Morgan has taken Chicago-based advisory firm Cresset Asset Management to court as part of a long-running legal dispute over Cresset’s alleged raid and recruitment of at least 10 J.P. Morgan private bankers.
J.P. Morgan had claimed in the January 2019 arbitration that Douglas P. Regan, Cresset co-chairman and former Midwest regional head for J.P. Morgan’s private bank, had solicited recruits–some of whom he had supervised–from J.P. Morgan after his departure in 2017. The actions violated non-compete clauses in his employment agreements and resulted in the “loss of tens of millions of dollars in client assets and substantial revenue well in excess of $75,000,” J.P. Morgan said in arbitration.
While the bank said it has not tallied the full extent of the damages it will claim, it noted in arbitration that the employees Cresset, which was founded in 2017, successfully recruited had collectively serviced hundreds of clients totaling “billions of dollars in client assets.” It also said that Cresset, early in its formation, had focused on filling its ranks with former J.P. Morgan employees, constituting an “impermissible raid” of its private bank.
Reached on Wednesday, Regan said that the bank’s claims are “without merit.”
“We believe the action is without merit and beyond that we don’t comment on litigation matters,” Regan said.
A Cresset spokeswoman separately declined to comment. Regan is the sole respondent in the arbitration claim, while Cresset is the defendant in the court action.
A J.P. Morgan spokesman declined to comment on the matter.
Cresset, per J.P. Morgan’s version of events, had been ordered to appear for a preliminary hearing before an American Arbitration Association arbitrator on February 28 of last year and bring with it certain documents requested in the subpoena, according to court documents. The bank said that Cresset possesses “vital” documents and related information concerning the recruiting and hiring of the former J.P. Morgan employees that it is seeking in arbitration.
Cresset countered that the documents J.P. Morgan seeks are “overly broad and unduly burdensome” for determining whether the firm and Regan were out of bounds in wooing the former J.P. Morgan employees in question, as the bank alleged.
In objecting to multiple iterations of the subpoena, Cresset said that the “vast majority” of J.P. Morgan’s demands–for documents such as those concerning Cresset’s financial information, confidential business plans, or compensation arrangements with Regan–were “irrelevant” to the controversy.
Cresset also claims J.P. Morgan has failed to account for more than 1,500 documents and discovery responses–including from personal and company-issued email addresses–that have already been provided by Regan.
Regan had joined J.P. Morgan in August 2012 and voluntarily terminated his employment effective May 30, 2017 to join Cresset, which he had helped form in March of that year, according to J.P Morgan’s complaint.
J.P. Morgan also claimed Cresset, in some cases, used a third-party recruiter, who had also previously worked at J.P. Morgan, and Regan, in other cases, reached out to J.P. Morgan employees directly in attempting to lure them to Cresset.
J.P. Morgan Securities in February 2018 had filed a statement of claim against Regan and Cresset before the Financial Industry Regulatory Authority, the brokerage industry regulator. A panel in November of that year dismissed the claim without prejudice, finding that the parties should proceed instead to AAA arbitration, according to court documents.
The AAA arbitration has been stayed pending the court’s order concerning Cresset’s compliance with the subpoena, according to J.P. Morgan’s petition.
While the suit and underlying arbitration essentially aim to stave off attrition caused by employee defections to competitors, the dispute differs from J.P. Morgan’s typical pursuit of temporary restraining orders and injunctions against advisors on the move by focusing instead on the firm and executives doing the recruiting.
Cresset, meanwhile, has continued to draw from J.P. Morgan’s ranks, including the addition of a four-person J.P. Morgan Private Bank team in Denver, in June.
Overall, the RIA has about $14.8 billion in customer assets, according to its website. It is a member of the Protocol for Broker Recruiting, the industry pact that allows brokers to leave with customer contact information, although J.P. Morgan specifically excludes its private bankers from the agreement’s legal protections.