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Morgan Stanley Drops Restraining Order Against Brokers, But Still May Have Accomplished its Goal

Attorneys say the brokerage is trying to bully advisors with the court cases to deter others from leaving the firm.

Morgan Stanley withdrew its motion seeking a temporary restraining order and a preliminary injunction against a group of its former brokers who resigned from the firm to join Raymond James. On the surface, it was a small victory for the recently departed advisors, who will still face-off with the brokerage in arbitration.

But the motion, filed in U.S. District Court for the Eastern District of Michigan, cost the advisors thousands of dollars and, according to lawyers representing the defendants and the unaffiliated with the case, served Morgan Stanley’s purpose: to show it can bully advisors in court to try and deter others from leaving.

David Gehn, an attorney at Ellenoff, Grossman & Schole representing the former Morgan Stanley advisors, said the motion by Morgan Stanley was “a complete waste of time and money.”

Patrick O’Neill, a Morgan Stanley advisor in Michigan and his team resigned from Morgan Stanley on Feb. 16. That evening they received a letter from the firm claiming the group violated the terms and conditions of their agreements with the brokerage.

O’Neill and others forwarded the letter to Gehn, who called the attorneys representing Morgan Stanley within an hour to let them know he was representing them. Gehn also sent then an email and requested more specific information and evidence of the group’s wrongdoing.

Morgan Stanley responded two days later but offered no substantive details. Instead, they wanted the personal electronic devices of those who left. The next day, Feb. 19, Gehn followed up with another email requesting more information but received nothing. The attorneys never responded to any voicemails Gehn left either.

Instead, Morgan Stanley filed an ex parte motion—one that can be decided on by a judge without the presence of all parties—on Feb. 21 for a temporary restraining order and preliminary injunction against the advisors.

Gehn filed a long formal response to the motion and Morgan Stanley withdrew it shortly after. In his eyes, a phone call between each side’s legal counsel could have saved everyone time and money. Regardless of the motion, the two sides were destined go before a FINRA arbitration panel. “How about just call me?” Gehn said. “How about returning my email?”

He thinks Morgan Stanley intentionally avoided getting back to him and that the purpose of the motion was to air out the fight in public court for others to see. Stories about the lawsuit were “damaging” to his clients, he said, and meant to have a “chilling effect” on other advisors reading about it. Morgan Stanley didn’t respond to requests for comment.

“My overall sense is that Morgan Stanley is going out and filing these cases against these departing advisors to send a message to their sales force that the firm’s going to have zero tolerance for advisors that try to leave and take their book with them,” said Scott Matasar, a securities litigation, enforcement and regulatory attorney at Matasar Jacobs.

He found it “unusual” that Morgan Stanley would withdraw the motions, and said that, in his mind, the firm would not have done so if it thought there was a chance a judge would side with it.

“I think, probably, the filing of the lawsuit already served its purpose,” Matasar said. “Everyone will read about the lawsuit, not everyone will read about the fact that they withdraw the motion for [a temporary restraining order].”

Sharron Ash, chief litigation counsel at Hamburger Law Firm, said that Morgan Stanley left the Protocol for Broker Recruiting Agreement—the long-standing arrangement that pared back litigation between brokerages when financial advisors left for another firm—for a reason.

“The conclusion you could draw here is that Morgan Stanley has certainly set itself out as more litigious, at least now, because I think it’s consistent with their efforts to send a message,” Ash said. “I don’t think this is unusual when you’re dealing with a non-protocol transition.”

In addition to Morgan Stanley, UBS and Citi have also left the protocol agreement. Bank of America’s Merrill Lynch and Wells Fargo have said they will remain members.

Ash cautions advisors that the withdrawal of the suit should not lead to assumptions about what may or may not happen to others planning on leaving a non-protocol firm. “They shouldn’t think that Morgan Stanley is losing the wind in their sails,” she said about the withdrawn motion.

“In this environment you will continue to see that other firms are watching this, taking lessons from it and drawing conclusions,” Ash said.

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