Six Morgan Stanley financial advisors previously managing about $1.79 billion in client assets for UBS Financial Services have been slapped with a lawsuit filed by their former employer on Friday in the Southern District of Florida.
And Teresa J. Verges, a former assistant director of enforcement for the Securities and Exchange Commission and the current director of the investor rights clinic at the University of Miami School of Law, said UBS has a larger problem if the allegations it has made against the advisors are true. Among them is the potential violation of Regulation SP, which is a rule that protects confidential client information.
“While the departure of over $1 billion of client assets may be the primary driver of this lawsuit,” said Verges, who is not involved in the litigation, “a significant concern I would have from the firm’s perspective is the potential liability for violations under SEC regulations requiring firms to protect confidential customer information that — according to the complaint — has walked out the door.”
The dispute in this lawsuit stems from an agreement that Sean Fetterman reached with the Swiss-based investment bank. He led the team of six financial advisors at the Fetterman & Fetterman Wealth Management Group to leave the UBS Boca Raton office on Dec. 4.
Among the terms Sean Fetterman agreed to in the ALFA Premier Plus Commitment Agreement was select post-employment restrictive covenants, including a non-compete covenant and a one-year non-solicitation of UBS clients, in exchange for an immediate payout exceeding $7 million, according to the complaint, which surfaced on Law.com Radar.
However, when Morgan Stanley came knocking on his door, Fetterman allegedly re-engaged on his contractual commitment in favor of a better deal with the American-based wirehouse. Also, Fetterman’s team of advisors are accused of printing thousands of pages of documents containing highly confidential UBS client information, according to the complaint.
Now, the case will go before Judge Donald M. Middlebrooks, who sits in the Southern District of Florida. There, UBS is seeking immediate injunctive relief to enforce the contractual promises, the protection of its customers, goodwill and confidential information.
UBS and Morgan Stanley did not respond to a request for comment. And the defendants listed at the wealth management group, Sean Fetterman, Adam Fetterman, David Raphan, Brandon Fetterman, Leticia Buckley and Deborah Umphrey, declined to comment.
Read the complaint:
According to the complaint, Sean Fetterman has generated about $9 million of the $14 million a year in annual revenue for the wealth management group. Collectively, the team has managed about $1.79 billion in client assets.
Rob Larkin, a labor and employment lawyer with the Miami-based law firm Allen Norton & Blue, said that Middlebrooks would likely grant a preliminary injunction and will have the case presented before an arbitration panel. Larkin also said Morgan Stanley may be a defendant in the arbitration over the potential violations of the non-compete and non-solicitation agreements.
“If what UBS is saying is true, that we have these people downloading documents, all of them leaving the same day without notice and immediately soliciting clients that they were telling to come to Morgan Stanley,” Larkin said, “this is exactly what non-compete and non-solicitation agreements are designed to prohibit.”