Advisors Sue Focus Financial Over 'Staggeringly Overbroad' Restrictions

"However, upon information and belief, but unbeknownst to Plaintiffs at the time, Defendants intentionally and strategically arranged the acquisition to create complex business structures to, among other things, circumvent regulatory requirements" such as the Financial Industry Regulatory Authority rules that prohibit the types of restrictive covenants Focus seeks to enforce, the suit states.

Resignation

Patrick and deButts resigned when Edge Capital announced its intention to make a deal with SCS "that was structured in a way that would benefit the larger percentage owners of Edge Capital’s management company ... at the expense of Plaintiffs," the suit states.

Following their resignation, "Focus launched a campaign of intimidation designed to prevent Plaintiffs from engaging in the RIA business, from fairly competing, or from earning a living," the suit continues, "and designed to chill those clients who might elect to do business" with them or from working with them at future potential employers.

On or about Jan. 6, 2025, Patrick and deButts "were sidelined" by Focus, the suit states.

"They were prohibited from entering the office and cut off from all emails. Although still affiliated with ECG, Plaintiffs could not serve their clients, and neither Focus nor Edge Capital assigned those clients another advisor," the suit states. Instead, during the week of Jan. 6, "Edge Capital and Focus contacted Plaintiffs’ clients and tried to convince each client to stay with Edge Capital and Focus. They also sold each client on the new transaction, and upon information and belief, misled the clients into believing Plaintiffs had already resigned."

Harry Jones, a managing member of ECG, at the direction of Focus or with Focus' knowledge, "then launched a campaign of that damaged Plaintiffs’ reputation within the investment advisory industry in order to further advance their anti-competitive goals," the suit maintains. Among other acts, Jones told a representative of Goldman Sachs "that ECG and Edge Capital had to 'get rid of [Plaintiffs]' in order to effectuate the deal with SCS," the suit states, and told "an individual that could refer clients to Plaintiffs that Jones had 'fired' Patrick."

Following their resignation from ECG, Patrick and deButts joined NewEdge Wealth as RIAs.

Management Agreement

The management agreement with Focus contains a client non-solicitation and non-service covenant, which prohibits Patrick and deButts "for two years, from — directly or indirectly, and in any capacity (except on behalf of Defendants) — soliciting, marketing, or selling investment advisory services or products to anyone that, within the preceding two years, was an actual or prospective client of Edge Capital or an actual or prospective client of any of Defendants’ Affiliated Companies," according to the suit.

"As intentionally written, the Solicitation and Service Covenant is grossly overbroad, illegal and unenforceable," as is the Solicitation and Hiring Covenant, the suit states.

Collectively, "Focus Financial Partners, Inc., and the private equity firms that control them to a common design represent a significant impact on certain sectors of the financial services industry, such that anticompetitive activity by them has a significant impact on the financial services industry and is worthy of Court and regulatory scrutiny," the suit maintains.

"Unless immediate, temporary and permanent relief are granted to Plaintiffs preventing Defendants from enforcing or attempting to enforce the Covenants, Plaintiffs will be irreparably harmed and without an adequate remedy at law," the suit states.

Enforcement of the covenants would essentially prevent the advisors "from working in the investment advisory business in any manner and would therefore irreparably damage their careers and ability to earn a livelihood — all in derogation of New York law and public policy," according to the suit.

Focus has not responded to a request for comment.