J.P. Morgan Seeks TRO Against Chicago Brokers Who Jumped to Merrill

August 24, 2018

by
AdvisorHub Staff

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Morten Falch Sortland/Moment/Getty Images

J.P. Morgan Securities on Thursday asked a Chicago court to restrain two former brokers who left its private bank in April to join Merrill Lynch’s private banking and investment group from soliciting Morgan clients.

The brokers, former “investment specialist” Kirk J. Cunningham and former “banker” Todd R. Helfrich, have persuaded J.P. Morgan clients to transfer about $160 million to Merrill and are bad-mouthing the bank’s practices and advisors in violation of their employment contracts that have one-year nonsolicitation clauses, according to the lawsuit filed in U.S. District Court in the northern district of Illinois.

The suit from JPMorgan’s private bank, which is not a member of the Protocol for Broker Recruiting that permits brokers to take limited customer-contact information when they leave for another Protocol firm, adds to an onslaught of suits seeking temporary restraining orders that Morgan Stanley and UBS Financial Services brought late last year and early this year after leaving the Protocol.

J.P. Morgan’s five-month delay in bringing the lawsuit against the brokers who it asserts were collectively servicing about 110 clients with more than $14 billion in private bank accounts was caused by its discovery early this month that Cunningham sent solicitation emails to a former client, who then complained that his private data was being compromised, according to the lawsuit.

As in other courthouse requests for restraining orders, J.P. Morgan asked that the constraint remain in place until arbitrators render an award in a complaint that the bank is filing with the Financial Industry Regulatory Authority and also that Cunningham and Helfrich return all records pertaining to JPMorgan’s clients, employees and business, within 24 hours.

A spokesman for Merrill Lynch said the firm was reviewing the filing and could not immediately comment. A spokeswoman for J.P. Morgan declined to comment.

The filing accuses Cunningham and Helfrich, who were respectively with Morgan’s private bank for nine-and-a-half and almost seven years, of “badmouthing JPMorgan and making false statements” about the firm and its advisors to clients.  In signing agreements tied to awards of deferred stock, the advisors also consented to “non-disparagement” clauses, the J.P. Morgan filing said.

“Several JPMorgan clients have informed the firm that Defendants are stating that JPMorgan only has junior people left to manage the client accounts, that JPMorgan does not have enough advisors left to cover its clients, and that JPMorgan forces its clients to use only its own products,” the filing says. “‘Smaller’ clients have informed JPMorgan that Defendants are telling them that the Private Bank will only be covering larger clients and that they – as smaller clients —will be moved to a smaller platform at JPMorgan. Conversely, ‘larger’ clients have informed JPMorgan that Defendants are telling them that the Private Bank is focusing all of its efforts on ‘smaller’ clients, not on them.”

JPMorgan two years ago “segmented” clients of its private bank into different service levels, shifting those with less than $10 million into a unit serviced primarily by a single relationship banker while those with higher assets catered to by a team of banking, investment, and trust and estate specialists. It also agreed to pay $307 million in late 2015 to settle regulatory charges of failing to disclose conflicts of interest related to sales of its own mutual and hedge funds to wealthy clients.

The lawsuit contends that as bankers rather than traditional brokers, Helfrich and Cunningham were given clients from other parts of the bank, an argument that Charles Schwab and other discount brokers have made in their own recent pursuits of TROs against departing brokers. The argument is meant to deter claims brokers often make of “owning” their client relationships.

“JPMorgan gave Defendants virtually all of the clients they were servicing at the time of their resignations,” said the court filing, which also argued that its business structure limits the personal reach of its private bankers and said that most of their clients had 10 or more years experience with the bank.

“Unlike traditional brokerage firms (where clients are serviced almost exclusively by one financial advisor), JPMorgan’s Private Bank adopts a flexible approach. For clients with relatively straightforward investment needs, a single investment advisor typically would be assigned,” the filing says. “However, clients with more complicated investment needs typically would be serviced by a team of professionals which, depending on such client’s needs, would include a Banker (the relationship person, who is the client’s primary contact at JPMorgan), an Associate Banker (i.e., a junior banker), an Investment Specialist (i.e., an investment advisor), a wealth advisor (who is usually an attorney), a trust officer, a credit/loan officer, and a client service person.”

As an Investment Specialist, which JP Morgan internally calls an “investor,” Cunningham was responsible for helping “bankers” who have the primary customer relationship make product and service choices, the filing said.

Helfrich, who like Cunningham had the corporate title of executive director, was a banker responsible for coordinating the team servicing his high net worth individuals and their families, businesses, foundations and endowments, the filing said.