An unsuccessful $15 million claim by Charles Schwab against Morgan Stanley for poaching its brokers suggests there was real animosity between the two parties, say legal experts.

However, the experts add, it's unlikely it will have a chilling effect on the filing of so-called "raiding cases."

The two-year dispute over 10 brokers who left Schwab’s San Francisco office to join Morgan Stanley was heard by a FINRA arbitration panel in the Bay Area, which ruled on Monday to deny Schwab’s claim that Morgan Stanley had maliciously orchestrated “an actionable raid,” and convinced the brokers to breach confidential contracts.

Though the panel denied Schwab’s claim, it ordered Morgan Stanley to pay Schwab close to $72,000 in sanctions. No reason was provided for the decision that was filed with FINRA.

“We strongly disagree with the panel’s decision and are evaluating our legal options in this situation,” according to a Charles Schwab spokesperson. “The claims in this case were compelling, including instances of taking proprietary information, manufacturing evidence, and operating a steady raid on staff and clients resulting in significant damage to Schwab. We think this arbitration decision is an anomaly, and will pursue an aggressive course of legal action should other similar situations occur.”

A Morgan Stanley spokesperson declined to comment on the decision.


“There is virtually nothing cattier or more vicious in FINRA arbitration than a raiding case between two firms,” says Chicago-based securities attorney Andrew Stoltmann.

Stoltmann and other securities attorneys note that raiding cases -- where a firm claims production losses of 30% to 40% in a short period due to recruiting by another firm -- have become less prevalent since an industry-recognized broker recruitment protocol was introduced in 2004.

Such disputes still happen, but it is even rarer for them to become public and go before an arbitration panel, says securities attorney Kevin P. Conway, managing partner at Manhattan-based law firm Conway & Conway. “That usually means a communications breakdown between firms.”

Conway adds that he was surprised that Schwab would make such a claim against Morgan Stanley. “You can’t keep brokers chained down to one firm,” he notes. “And they are not a traditional brokerage like Morgan Stanley.”


In such a competitive market, Stoltmann says such public raiding cases are meant to send a message to other firms. “It’s a shot across the bow,” he says. “There’s definitely a strategy for not settling, even if there is a meritous claim. The message is that we will fight you tooth and nail.”

There were over 3,700 arbitration cases filed with FINRA last year, according to the regulator. Roughly one-third were intra-industry cases, officials say.

The FINRA arbitration panel that heard the dispute between Schwab and Morgan Stanley consisted of James D. Murray, a Los Angeles-based attorney, Robert M. Hirsch, a San Francisco-based full-time mediator and arbitrator, and Gary A. Hooker, a financial advisor with Livermore, California-based Oak Tree Securities and owner of Diversified Planning Concepts in San Francisco, an RIA firm that sells insurance products.

According to FINRA records, Murray had previously heard three cases involving Charles Schwab, Hooker had heard two cases involving Morgan Stanley, and Hirsch had previously heard two cases involving Morgan Stanley, and one case involving Charles Schwab.

Suleman Din is a contributor to On Wall Street in New York.

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