Merrill Wins TRO But Lets Brokers Notify Customers of Move
Merrill Lynch and two former brokers in Canton, Ohio, have agreed to a stipulated restraining order that gives both sides some ammunition in fighting for clients.
Merrill last week asked a federal court to enjoin brokers John Hostetler and Tina Migge from contacting former clients to join them in their new practice with independent brokerage firm Stratos Wealth Advisors and to grant a temporary restraining order to allow for an expedited hearing in Finra arbitration.
Under the stipulated agreement approved by a federal judge on Monday, the brokers agreed to return client contact information that Merrill claimed was obtained in violation of their employment contracts and privacy laws. But Merrill agreed to permit the brokers to announce their move to Stratos in a “tombstone letter” to clients serviced by their former Merrill team.
The ability to notify clients is an important concession in a hostile climate accentuated by withdrawals from the Protocol for Broker Recruiting and by aggressive monitoring of non-solicitation agreements by firms such as Merrill that remain in the pact, lawyers said.
“This is a positive for the advisor,” said Thomas B. Lewis, a lawyer with Stevens & Lee in New Jersey who specializes in securities industry employment law. “The real question is whether Merrill is effectively softening its position to suggest that, in certain situations, announcing to the client is acceptable behavior and not solicitation.”
A Merrill spokesman did not immediately return a request for comment on the stipulated order or on whether it has broadly changed its policies.
Hostetler and Migge, who were part of a five-person team at Merrill, had successfully transferred 140 clients with $26.5 million in assets since joining Stratos in mid-May, Merrill said in its lawsuit filed last week. Their team generated $1.15 million of annual production on client assets of $138 million, it said.
Merrill fired Hostetler April 6 over “conduct inconsistent with Firm standards regarding personal trading,” according to BrokerCheck, while Migge left voluntarily.
The agreement reached earlier this week also requires Merrill to return to Hostetler all personal effects in its possession, such as holiday cards, children’s art work and desk knick-knacks.
“The Parties agree that this Stipulated Order is being entered solely for purposes of judicial efficiency and the reduction of litigation costs by the parties,” the order states.
Scott Matasar, a Cleveland-based lawyer for the brokers, did not return a request for comment. In his initial response and in court filings, he denied that Hostetler and Migger had violated their employment contracts or taken unauthorized client data. He also said the firm was improperly denying Hostetler protections of the Protocol for Broker Recruiting.