CLIENT ALERT: Please read this special message.

Wells Thwarted in Raiding Claim

Investment News—Dan Jamieson

An arbitration panel's recent decision to deny Wells Fargo Advisors LLC's $30 million raiding claim against crosstown rival Stifel Nicolaus & Co. Inc. is just the tip of the iceberg in a six-year battle over advisers.

More than a dozen raiding claims from Wells Fargo drove Stifel to file a complaint against its rival with the Financial Industry Regulatory Authority Inc., alleging a “nationwide scorched-earth litigation campaign against Stifel” and an “ongoing abuse of the judicial and Finra arbitration process.”

13 CASES

A first hearing on the complaint is scheduled to begin next March. In the claim, filed about a year ago but recently obtained by InvestmentNews, Stifel lays out 13 arbitration cases Wells Fargo Advisors has filed since 2007 that accuse Stifel of raiding its branch offices.

Rather than pursue legitimate claims, Wells Fargo Advisors has engaged in “restraint of trade, abusing the [arbitration] process and trying to intimidate people ... from leaving,” said Ron Kruszewski, chief executive of St. Louis-based Stifel.

In an interview, Mr. Kruszewski said he thinks he has a good shot at getting an award and stopping what he sees as a vendetta against Stifel by his larger competitor that began in 2007 when he started picking off former A.G. Edwards Inc. brokers after that St. Louis firm was acquired by Wachovia Securities LLC.

Wachovia was later taken over by Wells Fargo & Co.

Mr. Kruszewski points to three separate arbitrations in which hearing panels have thrown out Wells Fargo Advisors' raiding cases and ordered Wells to pay a total of $2.8 million in legal fees to Stifel.

The latest such case was decided April 18, when a Finra panel in California ordered Wells to pay Stifel $800,000 in costs.

The litigation has been “frustrating,” Mr. Kruszewski said. “This is the third time we've won ... Now, if you win one time, you might say it's an oddity. But three times now?”

In arbitration hearings, Stifel has argued that Wachovia Securities told A.G. Edwards brokers that it would honor a long-held Edwards policy that brokers were free to leave and take clients without fear of litigation.

“We believe the former [Edwards] brokers remain free to work wherever they want to, and [Wachovia] encouraged them to look around,” said Stifel's attorney, Joseph Dougherty, managing shareholder at Buchanan Ingersoll & Rooney PC.

Wells Fargo Advisors has won about $230,000 in two of the cases cited in Stifel's arbitration claim, Mr. Dougherty noted.

“But we count those as wins,” he said, since Wells Fargo had asked for a total of $25 million in damages.

Two cases filed by Wells Fargo are still pending, as is a third case filed last year in Indiana that arose after Stifel filed its own claim. The rest have been dropped or denied by arbitration panels, Mr. Dougherty said.

                           *           *          *

Observers said Stifel's arbitration filing against its rival is an unusual action.

                           *           *          *

“I don't see claims like this every day,” added Larry Moy, an industry employment lawyer and partner at Outten Golden LLP. “There's always a risk that an arbitration panel might say, "A pox on both your houses,' and view this as a private squabble. I'm not sure another panel is going to want to be involved in some type of global solution” to the dispute.

Stifel's arbitration complaint does not specify damages but says the firm has spent “millions” in legal fees and suffered “untold hours of business disruption” in defending against the raiding claims.

The Stifel-Wells Fargo feud dates from June 2007, when Mr. Kruszewski sent a letter to A.G. Edwards brokers inviting them to join his firm in the wake of the announced Wachovia takeover.

                         *           *          *