UBS has filed a lawsuit in the U.S. District Court for the District of Connecticut, suggesting four former brokers have breached non-solicitation and non-disclosure provisions contained in multiple agreements signed during their employment.
Coverage of the lawsuit appeared this week in Financial Advisor IQ and other trade media publications. The brokerage and advisory firm alleges the former staffers have breached non-solicitation provisions contained in the UBS Financial Advisor Team Agreement signed by a number of the defendants. Related to these claims, the suit suggests the brokers have “misappropriated UBS’s trade secrets in violation of the Connecticut Uniform Trade Secrets Act” and in violation of the Connecticut Unfair Trade Practices Act. Finally, UBS accuses its former staffers of breaching their fiduciary duty to the firm during the close of their employment and of promoting unfair competition.
The brokers named in the suit are Phil G. Fiore Jr., Jeffrey H. Farrar, Louis Gloria and Thomas M. Gahan. According to UBS’s complaint, on June 2, 2017, defendants Farrar, Gloria, and Gahan resigned from UBS without prior notice and immediately joined UBS competitor Procyon Private Wealth Partners, LLC. This was not long after the previous termination of Fiore, who had since formed his own independent advisory company, Procyon.
As the complaint lays out: “Procyon had been recently formed by their former UBS colleague, defendant Fiore, who had been terminated by UBS in November 2016. At UBS, defendants had been part of a team of financial advisers, institutional consultants and support staff known as the FDG Group who managed approximately $8 billion in assets for individual and institutional UBS clients generating approximately $6 million in annual revenue … Almost immediately after defendants Farrar, Gloria and Gahan joined Procyon, defendants began soliciting UBS clients to leave UBS and do business instead with defendants at Procyon.”
Defendants are accused of using “confidential UBS client information to accomplish the solicitation.”
“Defendants’ solicitation of UBS clients and misuse of confidential UBS client information, which continues unabated, is in direct breach of non-solicitation and non-disclosure agreements they signed at UBS,” the firm argues. “In addition, defendants have been misleading UBS clients by stating that their former UBS team, the FDG Group, ‘is now’ Procyon or that the entire team had moved to Procyon, when in fact defendants constituted only part of the FDG Group and other members of the FDG Group – including two founding members—remain at UBS. Defendants’ misrepresentations have caused substantial client confusion and concern.”
UBS also believes that defendants “began competing against UBS during the six-month period between defendant Fiore’s termination in November 2016 and when the other defendants resigned on June 2, 2017. Upon information and belief, Fiore—with the knowledge of the other defendants—for months had had been telling clients about the plan to set-up Procyon and soliciting those clients to move their business to Procyon once the firm was operational.”
NEXT: More detail from the text of the suit
The text of the UBS challenge goes into significant detail regarding the various non-solicitation agreements the defendants signed during their respective tenures at the firm. Similar to agreements in place across the industry, it appears UBS requires brokerage employees to agree, in the event of termination for any reason whatsoever, to neither directly or indirectly solicit any of the firm’s clients. The non-solicitation period is to last one year from the date of termination, “or until such time that all amounts owed by the employee to UBS and all related entities have been fully repaid, whichever is earlier.”
An employee must also agree to “not solicit, directly or indirectly, any of the clients who maintain accounts at UBS whom employee serviced during his/her employment at UBS or other clients of UBS whose names became known to employee while in the employ of UBS.” UBS argues that "solicit," as set forth in these agreements, means that the employee “will not initiate, whether directly or indirectly, any contact or communication of any kind whatsoever, for the purpose of inviting, encouraging or requesting a client or that may have the effect of inviting, encouraging or requesting a client: (a) to transfer his/her UBS account(s) to the employee or his/her new employer; or (b) to open a new account with employee or his/her new employer; or (c) to otherwise discontinue his/her existing relationship with UBS.”
Interestingly, the agreements do leave open some possibility of solicitation, and it seems that defendants will argue their solicitation was appropriate on these or related grounds, given that the defendants in fact shared a list of potential clients they would be soliciting with UBS on their way out the door. Here is how the exemption is spelled out: “If the employment of any team member (current or former) terminates for any reason, that team member will not, for a period of one year from the employment termination date, solicit any clients that were serviced by the team. This provision does not apply to client accounts the departing team member introduced to the team, either at its inception or during its existence. Nothing in this non-solicitation provision limits any rights UBS or any team member may have under the Protocol for Broker Recruiting.”
But according to UBS the former brokers far overstepped any exemptions by leveraging confidential client information, for example by sending “blast email to UBS clients informing the clients of their new affiliation with Procyon and stating ‘our team will be reaching out to you in the coming days to discuss any questions you may have about this change, including the details about the smooth transition of your accounts to your new custodian partner.”
“In addition to sending the blast email, defendants have made phone calls to UBS clients, including multiple clients defendants Farrar, Gloria and Gahan did not introduce, soliciting the clients to move their business to Procyon,” UBS argues. “Upon information and belief, defendants have used the lists defendants Farrar, Gloria and Gahan submitted with their resignation letters, which contain confidential UBS client information, to accomplish the solicitation … In their communications with UBS clients, defendants have sought to give clients the impression that the entire FDG Group has moved to Procyon.”
The full text of the compliant, which includes more than 70 pages of exhibits, is available here.