FINRA Arbitrators Enjoin Stockbroker In Employment Dispute With U.S. Bancorp

May 6, 2013

Although the facts aren't exactly spelled out in this FINRA Arbitration Decision, it seems clear that a former employer broker-dealer and employee wound up in a heated dispute as to how the registered person left, what she took and how she took it, and what the consequences of such conduct would be.  In the end, we wind up with an arbitration panel imposing upon the stockbroker a permanent injunction and restraining other contacts for one year. There are lessons to be learned for those contemplating moving on to other pastures, greener or otherwise.

Unfair Competition

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in November 2012, Claimant U.S. Bancorp Investments asserted against its former employee Respondent Madison causes of action including breaches of contract and fiduciary duty; misappropriation of trade secrets; and unfair competition. Claimant sought restitution, punitive damages, costs, fees, and the issuance by the FINRA arbitration panel of a permanent injunction. In the Matter of the FINRA Arbitration Between U.S. Bancorp Investments, Inc., Claimant, vs. Fariba Zehtabian Madison, Respondent (FINRA Arbitration 12-03991, May 2, 2013).

Respondent Madison generally denied the allegations.


The FINRA arbitration panel permanently restrained and enjoined Respondent Madison, her agents, and persons acting with her or on her behalf from:
  • Misappropriating Claimant's confidential and proprietary information and trade secrets, which included customer lists and contact information  concerning Claimant's customers serviced by Respondent during her employment (with the carve-out for customers brought by Respondent to Claimant during her first six months of employment); and
  • Misrepresenting to Claimant's clients that Respondent is employed by JP Morgan.
The panel also restrained and enjoined through October 17, 2013, Respondent, her agents, and persons acting with her or on her behalf from:
  • Soliciting business from Claimant's clients with whom she became acquainted during her employment, including "those whose private information, personal information, confidential, proprietary and trade secret information was on the Book of Business Report, Respondent improperly accessed and copied from Claimant's computer systems and removed from Claimant, except for any information regarding customers serviced by Respondent that she brought to Claimant during her first six months of employment."
Bill Singer's Comment

Much of what we may understand about this dispute is derived via inference because the Decision gives short shrift to the underlying events. According to online FINRA documents as of May 8, 2013, Madison was first registered in 1983, and was registered with U.S. Bancorp from February 2006 until October 2012, at which time she appears to have joined Western International Securities, Inc.  

Apparently, U.S. Bancorp believed that Madison had improperly accessed client information on the firm's computer database. The panel's order restraining and enjoining Madison's solicitation appears to represent a one-year restriction from the date of her apparent departure from U.S. Bancorp.  The purported misrepresentation of Madison's employment with "JP Morgan," remains somewhat a mystery as that firm's name does not appear on her employment/registration records as reflected on FINRA online disclosures and the Decision fails to offer any context.

An interesting and instructive lesson from the resolution of this dispute is that notwithstanding the panel's sanctions against Madison's conduct in leaving U.S. Bancorp and contacting customers she had serviced at that employer, the restraints on her alleged misappropriation and solicitation did not get extended to customers she brought with her to the firm during her first six months of employment.  If you are a registered person contemplating moving to a new firm, you should seek to include such a written exclusion in any employment agreements that you sign with your new firm. Similarly, if you are negotiating with your current employer the terms of your resignation, consider asking that such a carve-out be included in writing in any agreements reflecting the terms of your departure -- also, consider including all so-called "friends and family" accounts in addition to those covered during the first six months or employment.

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