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Turner, Hemorrhaging Assets, Sues Defectors

ignites.com—Emile Hallez

Turner Investments is tangled in a web of litigation involving former employees who fled the firm as its assets under management plummeted.

The Berwyn, Pa.-based shop has sued at least three former top employees who left the company in 2014, as well as Lazard Asset Management, which hired one of them. Turner’s lawsuits are likely an attempt to prevent further erosion of its dwindling client base, one lawyer notes.

“This is to stop the bleeding,” says Wendi Lazar, a partner at law firm Outten & Golden. “They’re fighting for their lives, because they have enough business [left] to fight to keep it. So they’re suing everybody.”

Turner is also facing a lawsuit brought by William McVail, once a prominent portfolio manager at the company, who alleges that Turner owes him unpaid bonuses and has stifled his attempts to gain employment with another asset management firm.

The lawsuits were first reported by the Philadelphia Inquirer. They were filed in the Chester County Court of Common Pleas in Pennsylvania.

Turner managed more than $25 billion in assets in 2007 among institutional clients and mutual funds, according to Ignites sister publication FundFire. Currently, the firm manages north of $600 million. That’s down from about $750 million the firm managed as of Jan. 31, according to regulatory documents.

Since April 2011 the company’s mutual fund assets have plunged from more than $2.7 billion to about $510 million as of May 31, according to BrightScope.

Turner recently brought a lawsuit against a former portfolio manager, Frank Sustersic, as well as Lazard, which hired him in July 2014. Turner alleges that the investment bank used nefarious means of obtaining the company’s business, after it rejected Lazard’s preliminary interest in acquiring the firm, according to the Inquirer. The allegations are that Sustersic and Lazard used Turner’s confidential information to build competing mutual fund strategies, the report states.

Details of the litigation, including allegations brought by Turner, as well Lazard’s denial of illegal actions, were confirmed by people familiar with the lawsuit.

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While employees can be driven to leave firms because they are unhappy or simply receive better offers from other companies, it is common for “clusters” of employees to resign when a company is facing a merger or acquisition, or if the company is hemorrhaging its assets under management, says Christopher Stief, a regional managing partner at law firm Fisher & Phillips.

“When people are scattering to different locations, that usually suggests an internal driver,” Stief says, pointing to qualms that employees can have with a company’s management or their compensation.

McVail, who according to his résumé oversaw about $2.4 billion in small- and SMID-cap equity portfolios at Turner, sued the company in September, alleging that his former employer withheld bonuses due after his resignation in late 2013 and prevented him from gaining other employment.

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In his suit, McVail cites eight Turner employees who resigned from the firm in 2013 and 2014 and have since been hired by other managers. Those former employees “joined competitive enterprises without Turner claiming that such employment violated any restrictions on their post-Turner employment,” McVail’s complaint states.

Those employees include Chief of Investment Strategies Matt Glaser, now working for Lazard; CFO Tom Trala, who now works for Franklin Square Capital Partners; Chief Marketing Officer James Wylie, who now works for Newton Capital Management; managing director of client services John Finnegan, now employed by Delaware Investments; global equity analyst Sorin Roibu, who has since joined Brandywine Global; portfolio manager Joshua Kohn, now working for Centre Square Investments; and portfolio manager Jonathan Treitel, who is now at Columbia Partners.

McVail also names Sustersic as one of the employees whom Turner has not sued; but in fact, the firm filed a complaint against Sustersic in September, around the time McVail sued Turner.

McVail contends that an employment agreement he signed in 2001 does not have a legally binding non-compete provision that would prevent him from accepting work with another manager. Further, the fund he managed for Turner was closed to new investors, and the company does not have a protectable interest it can prove, he alleges.

McVail filed a claim for unpaid bonuses about a month after leaving the company. He also inquired with Turner at that time about any restrictions governing his employment by another firm, and he agreed to not solicit Turner’s customers during the term of agreement, according to the complaint.

Later, Turner indicated to Penn Capital that McVail was affected by a non-compete provision, preventing him from accepting an offer Penn Capital was planning to extend, according to the complaint. Turner’s action was based on “personal animus toward Mr. McVail, and not for any legally protectable business reasons,” the complaint states.

“He was basically leaving a sinking ship,” Outten’s Lazar says of McVail’s claims.

According to the story in the Philadelphia Inquirer, Turner brought another lawsuit against two former employees, Ralph Wetmore and Donald Smith, who have since been hired by BNP Paribas. That suit alleges that Wetmore and Smith violated their employment agreements by absconding with trade secrets, according to the Inquirer. However, Wetmore and Smith responded in court documents that they were essentially jumping from a sinking ship and that Turner reduced their compensation, thus breaching the same employment agreements, the Inquirer reports.

In the case against Sustersic and Lazard, Turner faces legal headwinds, Outten’s Lazar says.

Lazard likely signed a non-disclosure agreement as part of its due diligence process, but provisions of that agreement are unknown, she notes.

“These are tricky claims,” Lazar says. Common-law statutes, as well as the Uniform Trade Secret Act, address claims of trade secret violations, duty of loyalty and breach of contract, she notes.

“This scenario goes on all the time…. There is usually a group [of employees] that’s moving,” she says. “These claims are won and lost, usually, by how sloppy the team is — how much solicitation is going on, [such as] whether they’re on e-mail while they’re doing this.”

Turner appears to be pursuing claims aggressively, which could be a bid to keep additional employees from leaving — and client assets from following, she notes.

“They do it to try and salvage the clients that are left,” she says of such cases in general.

“Unfortunately what often happens is more clients leave, because nobody likes these lawsuits, and no clients want to be deposed.”