Schwab Seeks $6 Million In Solicitation Dispute

March 12, 2015

It's an old story on Wall Street. Employees get happy feet. Sometimes it's a short honeymoon and the relationship falls apart quickly; sometimes it's more akin to the seven-year itch. Whatever the circumstances that prompted the break-up, it's often a matter of corporate culture as to how the end plays out. As I see it, an enlightened employer will appreciate the contributions of a top producer and wish him or her well with their new job -- always leaving the door open for a return and maintaining a collegial atmosphere to the end. Other employers view the departure of an employee as the opening volley in a scorch-the-earth war. In the biz, you have employer firms that fall into each camp. There's the departing handshake or the overhand right.  Consider this recent FINRA arbitration that pits Charles Schwab & Co. against three former employees.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2013, Claimant Charles Schwab & Co., Inc., asserted against former registered representative Respondents Blom, Rosso, and Mack causes of action for breaches of contract, the duty of loyalty and fiduciary duty; misappropriation of trade secrets; tortious interference with contracts and business relations; unfair competition; and civil conspiracy. 

Claimant Schwab alleged that former employees Rosso and Blom had resigned, joined Clarity Financial LLC, and wrongfully solicited Schwab's clients to transfer their accounts. -- and that the client contact/solicitation was in violation of executed Confidentiality, Nonsolication and Intellectual Property Ownership Agreements that prohibited for 18 months contacting or soliciting any Schwab clients serviced by Respondents. Further, Claimant alleged that Respondent Mack aided Respondents Rosso and Blom's wrongful inducement and solicitation. Accordingly, Claimant Schwab sought a "Specific Performance Injunction" plus compensatory and punitive damages, attorneys' fee, and costs. 

At the hearing. Claimant Schwab requested:
  • damages of 4% of Schwab client assets that were diverted pursuant to improper solicitation or misuse of confidential information. This number was apparently determined to be $2,241,752.92; and/or
  • 75% of the most recent full year's total annual compensation paid by Claimant to each employee solicited or induced to leave its employment. This number was apparently determined to be $283,403.85; and/or
  • lost profits of $3,088,216.00; and
  • attorneys' fees of $511,958.05.
In the Matter of the FINRA Arbitration Between Charles Schwab & Co., Inc., Claimant, vs. Mark Layne Blom, Richard Michael Rosso and Connie Mack, Respondents (FINRA Arbitration 13-00784, March 4, 2015).

Respondents generally denied the allegations and asserted various affirmative defenses. Respondents requested attorneys' fees in the amount of $536,628.51 pursuant to the terms of the contracts between the parties.

Injunction Resolved

In September 2013, the parties reached an agreement to resolve the injunctive portion of this case and, thereafter, proceeded to a hearing on the merits.


The FINRA Arbitration Panel found that:
  • Respondent Rosso is liable to and shall pay to Claimant Schwab $60,000.00 in compensatory damages with 5% post-judgment interest from and including 30 days from the date of service of this Award until paid;
  • Respondent Blom is liable to and shall pay to Claimant Schwab $10,000.00 in compensatory damages with 5% post-judgment interest from and including 30 days from the date of service of this Award until paid;
  • All claims against Respondent Mack were denied with prejudice; and, as such, Claimant Schwab is liable to and shall pay to Respondent Mack $130,000.00 in attorneys' fees with 5% post-judgment interest from and including 30 days from the date of service of this Award until paid
Bill Singer's Comment

According to online FINRA BrokerCheck records as of March 12, 2015:
  • Claimant Rosso was first registered with Schwab in 1998 and resigned in September 2012 and became an Investment Adviser with Clarity in November 2012.
  • Respondent Mack was first registered with Schwab in 2000 and resigned in August/September 2009 and became an Investment Adviser at Clarity in November 2009.
  • Respondent Blom was first registered with Schwab in 2000 and resigned in April 2012 and became an Investment Advisor at Clarity in May 2012.
Regrettably, the FINRA Arbitration Decision offers virtually no content and context to the underlying dispute beyond the garden-variety setting of three former Schwab employees who left for another firm and were sued by their former employer for allegedly improper customer contacts.  Although Claimant Schwab sought some $6 milliion in damages and fees, its award was $70,000 plus interest from Respondents Rosso and Blom; moreover, that $70,000 needs to be off-set by the $130,000 in attorneys' fee awarded to Respondent Mack -- which gives Schwab a net loss of about $60,000 for the arbitration (not including attorneys' fee, other fees, and costs).

To my eyes, as a Wall Street veteran of over three decades, all that I see are three former Schwab employees, each with about at least a decade's worth of service to that firm. You'd like to think that there is some value placed upon such service by a FINRA member firm. Why industry employers are so quick to impose non-solicitation and non-compete clauses is baffling -- not that I don't appreciate the sound business rationale, I do; however, sometimes employers in a competitive industry need to be better attuned to the nature of their industry and the tenor of the times. Given what I do for a living and the many telephone calls that I receive from disgruntled registered representatives, I am well aware that certain firms have cultivated a reputation for throwing their employees under the bus or coming on like gangbusters after someone resigns. That tough-guy reputation may be worthwhile at times; however, more often that not, "word" gets around and those looking to join a new firm may often mark such a difficult employer off their list.

At the end of this employment arbitration, Schwab comes off as a brokerage firm flexing its muscles and daring its former employees to step into the ring.  That's well and fine when you deliver the knock-out punch; however, in this arbitration, Schwab is left on the short-end of a split decision and comes off more like a cream-puff than a contender.