Merrill Lynch’s corporate raid case against a dozen breakaway financial advisors, their newly formed firm, Charles Schwab and Dynasty Financial Partners lacks credible evidence of wrongdoing by Schwab and doesn’t warrant a temporary restraining order, Schwab contends in a court filing.
Last week, Merrill sued the advisors, Schwab, Dynasty and the new firm, OpenArc Corporate Advisory. The federal lawsuit alleges a “pre-meditated corporate raid” of Merrill's Atlanta-based Global Corporate and Institutional Advisory Services business, which had $129 billion in assets under management.
About 120 of 170 employees left to form OpenArc, including about 70 advisors, according to Dynasty, which has invested in the new RIA. Schwab, which holds a minority stake in Dynasty, serves as custodian for OpenArc accounts.
A hearing on Merrill's motion requesting a temporary restraining order was scheduled for Tuesday afternoon in U.S. District Court in Atlanta. Merrill wants the court to bar the defendants from, among other actions, soliciting or contacting Merrill clients or prospects they came to know while at the firm or encouraging Merrill employees to leave.
“Merrill does not allege a single actionable fact against Schwab, because it has none,” Schwab states in a memorandum filed Friday, adding that Merrill’s court filings rely improperly on allegations based purely on “information and belief” and “understandings.”
Merrill’s “rank speculation,” which is undermined by a sworn declaration, “is insufficient to support any claim against Schwab, let alone demonstrate a substantial likelihood of success,” Schwab contends in its response to Merrill’s request for a temporary restraining order and preliminary injunction.
Schwab contends Merrill has failed to demonstrate a substantial likelihood of success on the merits in case or that it would sustain irreparable harm absent an injunction against Schwab.
The 12 advisors left Merrill last week — the company says they abruptly resigned; the advisors say this happened after they were placed on administrative leave without cause and told not to contact their clients or fellow employees — and Dynasty announced OpenArc’s launch.
Schwab states it first learned of OpenArc’s interest in its custody services in February 2024 through Dynasty Financial Partners, which provides technical and strategic support to RIAs. Certain employees from Merrill’s GCIAS group were considering leaving Merrill and were interested in Schwab’s custodial services, the motion says, noting the group later organized as OpenArc.
Schwab says it engaged in discussions with Dynasty and the employees looking to leave Merrill about Schwab providing custodial services but never promised to give these employees access to Schwab clients.
Schwab says it explained that it could facilitate introductions to stock plan sponsor clients — if the stock plan sponsors wished — so that OpenArc could provide them and their participants with financial education services.
The financial services giant contends it didn’t receive any confidential information or trade secrets in these discussions and is vigilant about not doing so.
Among other points, Schwab describes as “far-fetched” Merrill’s allegation that the corporate defendants and advisors discussed ways to damage operations in the Merrill office after the breakaway team left.
Dynasty also filed a memorandum last week asking the court to deny Merrill’s motion for a temporary restraining order and preliminary injunction, saying Merrill “has failed to state a single factual allegation of theft of ‘trade secrets’ or solicitation” or presented evidence to support its motion.
The OpenArc team last week filed a memorandum contending that Merrill “secretly devised a plan to unfairly compete, deliberately harm their reputations and drag them through the mud in the press.”
Credit: Diego M. Radzinschi/ALM
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.