Ex-Morgan Stanley brokers ordered to pay Schwab recruiting penalties

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A FINRA panel has ordered a pair of ex-Charles Schwab advisors to pay practically $3 million to their former employer over a botched recruiting transfer by Morgan Stanley..

Christopher R. Armstrong and Randall B. Kiefner have been mired in litigation since being sued by Schwab in April 2019 solely a couple of week after leaving the agency on a Friday to begin working at Morgan Stanley later the identical day. Schwab took authorized motion towards the pair in federal court docket in New Jersey over allegations that they’d not abided by a nonsolicitation settlement forbidding them to achieve out to former purchasers for 18 months and had violated prohibitions on taking buyer data with them.

The dispute has since performed out in a number of boards and ranges of the U.S. judicial system.

In February, a Monetary Trade Regulatory Authority arbitration panel ordered Morgan Stanley and the 2 brokers to pay Schwab a bit greater than $4.2 million in compensatory damages and attorneys charges and prices and ordered Morgan Stanley to pay a further $3.03 million in punitive damages. In a twist, Morgan Stanley — which fired Armstrong and Kiefner a couple of month after hiring them — was additionally discovered at fault in its dealing with of the recruitment of the pair. The agency was individually ordered to pay the advisors $2.85 million and $1.17 million in compensatory damages, respectively, in addition to legal professional’s charges and prices. 

Regardless of not agreeing with the dispute’s end result, Morgan Stanley mentioned it has paid all the things the arbitration panel discovered it owed Schwab. That has not been the case, although, for Armstrong and Kiefner; Morgan Stanley mentioned in court docket paperwork that the pair has but to switch their roughly $2.8 million share of the entire owed Schwab.

Reasonably than undergo but extra authorized entanglements, Morgan Stanley agreed in April to take the quantity of the cash it owes Randall and Kiefner and set it apart in an escrow account for attainable fee on their behalf to Schwab. Morgan Stanley in the meantime went again earlier than a FINRA arbitration panel to hunt an order discovering that its pair of former brokers nonetheless owe Schwab cash.

“Whereas Morgan Stanley doesn’t agree with the arbitration panel’s choice, we’ll totally adjust to it,” a Morgan Stanley spokesperson mentioned beforehand. “Against this, Armstrong and Kiefner have refused to pay their proportionate share, regardless of the panel’s categorical discovering that they’re collectively liable. This motion is meant to make sure they pay in accordance with the panel’s dedication towards them.”

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Morgan Stanley emerged victorious in its newest arbitration battle on Nov. 7. In a unanimous choice, three FINRA arbitrators ordered Armstrong and Kiefner to pay Schwab $1.44 million every.

That can come out of the cash Morgan Stanley is holding in escrow. That switch leaves Armstrong with $810,500 and Kiefner with $333,789, plus roughly $700,000 in legal professional’s charges, from what Morgan Stanley was ordered to pay them within the authentic arbitration award.

A Morgan Stanley spokesperson declined to touch upon the case. Armstrong and Kiefner’s lawyer, Clinton Marrs of Albuquerque, New Mexico-based Marrs Griebel Legislation, didn’t instantly reply to a request for remark.

Individually, Armstrong is suing the law firm Shumaker, Loop and Kendrick and certainly one of its attorneys, Michael Taaffe. That authorized crew was introduced in by Morgan Stanley shortly earlier than Armstrong and Kiefner have been employed to advise them on what they legally may and could not do when leaving Schwab. 

In accordance with the go well with, the pair initially believed the agency was providing them unbiased authorized recommendation. They’re accusing Shumaker, Loop and Kendrick, in addition to Taaffe, of failing to disclose their historical past of working with Morgan Stanley on earlier instances.

Armstrong’s lawyer in that case, Jim Eccleston of Chicago-based Eccleston Legislation, mentioned Kiefner was initially a celebration to the dispute however has since dropped out.

“It has been very contentious — a number of motions and plenty of court docket appearances,” he mentioned. “Nevertheless it’s transferring ahead.”

Jody Papike, the CEO of the recruiting firm Cross-Search, mentioned she at all times recommends advisors rent their very own attorneys any time they’re pondering of going unbiased.

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“Particularly if there’s any form of sticky contract, do not hearken to anybody apart from a securities legal professional that you’ve got retained and who’s working in your behalf,” she mentioned. “It is completely in your greatest curiosity to rent your personal authorized counsel, ideally a securities legal professional who’s used to engaged on these contacts and may inform you how one can method your purchasers, what you may’t and may do and perhaps even provide you with a script of the phrases you should utilize if have been to achieve out to your purchasers.”

Armstrong has been registered with the unbiased broker-dealer Cetera advisors in Eatontown, New Jersey, since June 2022. Kiefner, who hasn’t labored within the trade since being fired by Morgan Stanley, was in the meantime arrested in April on 21 counts of possessing child pornography. His case is now pending in Seminole County, Florida.

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