[ by Melanie Gretchen ]

Morgan Stanley Smith Barney will have to pay for its poor judgement, a FINRA arbitration panel ruled.  Apparently, getting a job at Fidelity Investments wasn't enough for former MSSB broker Brian Wilder;  he tried to solicit former Fidelity clients after he left the firm, despite restrictions in his Fidelity employment contract that prohibited soliciting for 1 year after his departure.

FINRA Findings and Allegations. Fidelity alleged that Wilder tried to solicit Wilder's 400 former Fidelity clients.  To this end, he took confidential customer information when he left the firm last year to join Morgan Stanley Smith Barney by:

• sending account opening forms to his Fidelity clients via overnight mail
• making repeated solicitations to clients who said they were not interested in changing firms, according to the ruling

In his defense, MSSB argued that Wilder took contact information for the sole purpose of notifying his Fidelity customers about his new affiliation with Morgan Stanley Smith Barney, according the ruling. 

The Decision. Morgan Stanley Smith Barney was formed from Morgan Stanley's wealth unit and Citigroup's Smith Barney merged in 2009.  Under Fidelity's contract:

• Wilder was not allowed to solicit clients he served through the firm for one year after his September 2011 departure, according to the FINRA panel ruling
• a "confidentiality clause" in the contracted protected Fidelity's customer lists, under Massachusetts law, the panel ruled.

Although arbitrators usually do not reveal the reasons behind their awards, arbitrator John Kinsellagh wrote that Wilder had not followed precedent.  Under Massachusetts law, written announcements are the "preferred" way to notify clients about such a change.

While departing brokers are allowed to "announce" their moves to clients, "that right must be exercised in a manner that does not diminish or void" other obligations the broker may have to not solicit clients, such as those laid out in Wilder's contract, or to take brokerage trade secrets upon leaving, he wrote.

FINRA Sanctions. Going forward, MSSB must pay at least $534,000 to Fidelity.  This includes:

• $452,000 in legal fees
• $82,000 in punitive damages
• $82,000 in compensatory damages paid jointly by Morgan Stanley Smith Barney and Wilder

In addition, Wilder must personally pay $1,821 to Fidelity.  The decision, dated 9/21 and posted online on 9/24, followed an unusually long 15 days of hearings.

For further details, go to [Reuters, 9/24/12].