In two cases decided within the last 30 days, Edward Jones was denied requests for injunctions against former brokers it accused of stealing trade secrets and soliciting customers.
Edward D. Jones & Co., L.P. v. Michael Peterson, Case No. 2:19-dv-01968-JCM-EJY (D. Nev. December 6, 2019) and FINRA arbitration case 19-03340 (December 3, 2019)
On November 8, 2019, broker-dealer Edward D. Jones & Co., L.P. (“Edward Jones”) filed a motion for a temporary restraining order and a preliminary injunction in the United States District Court for the District of Nevada against Michael Peterson, one of its former brokers. The same day, Edward Jones filed an arbitration case against Mr. Peterson and his current employer, Ameriprise Financial Services, Inc. to obtain expedited permanent injunctive relief. On November 12, 2019, the court entered an ex-parte temporary restraining order against Mr. Peterson. The order temporarily prohibited Peterson from contacting his former Edward Jones clients. The temporary restraining order was applicable for 14 days, but the parties agreed to extend the TRO until a panel of arbitrators appointed by FINRA decided Edward Jones’ request for a permanent injunction.
In its lawsuit and FINRA complaint, Edward Jones accused Peterson of taking confidential customer information with him when he left Edward Jones’ employment and using the information to solicit former customers to move their accounts to Ameriprise. Peterson denied those allegations.
After a one-day hearing held on December 2, 2019, during which seven witnesses testified, the FINRA arbitration panel entered a decision denying Edward Jones’ motion for a permanent injunction and ordering the parties to “jointly seek a dissolution of the federal court Temporary Restraining Order.” The parties jointly moved the court to dissolve the temporary restraining order. The court granted the order on December 6, 2019.
During the arbitration hearing, Peterson presented evidence that he did not take any confidential information from Edward Jones when he left the firm and that he did not improperly solicit his former customers to move their accounts from Edward Jones to Ameriprise. Mr. Peterson admitted that since leaving Edward Jones he had spoken to former customers to announce that he had joined Ameriprise. According to Peterson, he did not solicit any clients to move to Ameriprise. Rather, he advised them of his move and, if questioned about their accounts, told them their accounts remained at Edward Jones and it was their choice whether to remain at Edward Jones and work with another advisor, continue to work with him by opening an account at Ameriprise, or move to another firm.
In his defense of the injunction request, Peterson pointed out that FINRA Regulatory Notice 19-10, effective April 5, 2019, requires that firms should “communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative.” Such communications should include disclosure to the customers of the departing representative’s contact information if the representative has consented to the disclosure. Furthermore, all communications by the firm about the departing representative must be “fair, balanced and not misleading.”
In an order dated November 14, 2019, the United States District Court for the Southern District of Indiana denied Edward Jones’ motion for a temporary restraining order and preliminary injunction against a former broker, John Kerr. The court ruled that Kerr’s communications with former customers in which he informed them of this change of employment did not constitute prohibited solicitation. Kerr’s evidence showed that he discussed customers’ ability to continue to use him as their financial advisor only in response to specific requests. In addition, Kerr showed that approximately 70% of the customers who followed Mr. Kerr to this new firm were members of his family or close friends. The judge noted that a majority of courts “reject the theory that an ‘announcement,’ like Mr. Kerr’s, qualifies as a solicitation, even where an employment agreement prohibits both indirect as well as direct solicitations.” The court also found persuasive Mr. Kerr’s undisputed evidence that Edward Jones itself instructs and encourages its new hires to contact their former customers that they have taken a position with the firm. Edward Jones even provides scripted language for the new hires to use when contacting their former customers.
© Andrew Whiteman 2019
For over thirty years, Whiteman Law Firm has handled securities litigation and arbitration cases. Click here for more information about our securities law practice. Please contact us for more information.