Firms that freeze the client accounts of brokers who leave, be warned: Don't try it in Utah.
The Utah Division of Securities has threatened to sanction Salomon Smith Barney and yank the license of a Salomon Smith Barney branch manager who refused to process ACATS forms when a broker left in January.
According to Utah Division of Securities Director Anthony Taggart, Salomon Smith Barney branch manager Dean Cottle refused to submit ACATS forms for 168 clients who wanted to follow broker Lynn Brandenburg to Prudential Securities across town in Salt Lake City. In a petition to an administrative law judge filed March 15, the securities division sought permission to sanction the firm for failing to supervise Cottle and to revoke or suspend Cottle's license.
The complaint is pending.
Despite the fact that Salomon Smith Barney obtained a temporary restraining order and later an injunction against Brandenburg prohibiting him from soliciting former clients, the firm should have processed the paperwork, Taggart says.
Salomon Smith Barney lawyers argue that such tactics are standard operating procedure, supported by the antisolicitation language in restraining orders and in broker employment agreements. “The division is now aware that this practice is associated with the enforcement of employment contracts and not divergent from what other firms are doing,” says Mark Griffin, an attorney with Woodbury & Kesler in Salt Lake City, who represents Salomon Smith Barney in the case. Griffin is former director of Utah's securities division.
Salomon Smith Barney has submitted documents describing hundreds of similar situations, Taggart confirms. But he adds that the case marks the first time Utah has received formal complaints from investors about a firm refusing transfer requests.
“We're basically weighing in now and telling the securities industry that we don't approve of it,” Taggart says. “If you do this in Utah, you can probably expect an enforcement action.”
Taggart adds that he hopes to ignite a national dialogue over account transfer problems with other state regulators during the North American Securities Administrators Association's (NASAA) annual meeting Sept. 9 to 11 in San Francisco.
Royce Griffin (no relation to Mark), general counsel with the NASAA in Washington, D.C., says he knows of no other states that have taken similar action in a TRO case. Nor is he aware of any policy the state regulators' group has regarding account freezes.
Utah appears to be out front on the issue. “We don't care if firms want to litigate their employment agreements,” says Taggart. “What we don't want is the client stuck in the middle of it.”
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