Typically, an employer will send a cease and desist letter to the advisor. This letter will remind the advisor that he has certain obligations set forth in the written agreement. The cease and desist letter will admonish the advisor not to violate the non-solicit agreement and that legal consequences may follow for any violations. If the company chooses to “go after” the advisor, he can expect that the employer will seek a temporary restraining order in either a federal or state court. This restraining order is routinely granted to maintain the status quo, which would prohibit an employee from soliciting accounts during the pendency of the injunction. It is important to note that even if an injunction is granted, the court will not stop the filing of ACAT forms. However, the court will stop the solicitation of accounts. Normally, within ten days after the issuance of the temporary restraining order, the court will either schedule a return date for a preliminary injunction hearing or will transfer the matter to the NASD for a Rule 10335 hearing (that is, if the investment professional is an NASD registered representative leaving a broker/dealer in favor of whom he has executed a restrictive covenant). A Rule 10335 hearing will be conducted by the NASD Panel within two weeks of the issuance of the temporary restraining order. The sole purpose of the Rule 10335 hearing is to determine if the injunction should continue, be vacated, or modified. After the Rule 10335 hearing is decided, the NASD Panel will schedule the case for a damages hearing. During the pendency of this process, the overwhelming majority of cases will settle.
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