Stifel Brokers Pay for Tampering with Former Firm’s Client Data
In a rare finding that a victorious employment lawyer calls a “wake-up call” to registered representatives plotting to hide client data before jumping to a new firm, an arbitration panel has ordered four brokers to pay their former employer’s attorney’s fees for criminal violations of federal and California computer laws.
The action came as part of an award of $430,000 imposed last week on the brokers, a retired colleague and a sales associate who left Southwest Securities’ downtown San Diego office in October 2015 to join Stifel Nicolaus & Co. in that city.
Southwest had also brought a raiding claim and charges of aiding and abetting the brokers’ breach of fiduciary duty against Stifel, but the arbitrators dismissed all claims against the hiring firm.
“Registered representatives cannot destroy company property, including customer records, in advance of their departure,” said Brandon S. Reif, a lawyer at Winget Spadafora & Schwartzberg in Los Angeles who represented Dallas-based Southwest, which is now known as Hilltop Securities. “The panel’s findings for punitive damages and for attorneys’ fees under criminal laws demonstrate the reprehensible conduct of the liable respondents.”
Criminal findings in civil recruiting cases is “unprecedented,” he asserted.
Southwest accused brokers Wyatt Farmer, Harvey Frank, Andrew Scott, Harvey Barry, Edward Kersh and Brett David Levinson, along with sales associate Carla Osbourne, of deleting or removing more than 18,000 business records and documents from Southwest computer drives and paper files, lying about it to regulators and returning the data only after investigation firm Kroll validated that the data had been deleted and succeeded in restoring it, according to Reif.
By that time, they had successfully transferred more than 90% of their former clients’ assets to Stifel, he alleged.
The brokers cumulatively managed about $500 million of customer assets and produced more than $2.5 million of annual revenue, representing some 30% of the Southwest Securities branch’s total production, Southwest alleged in its claims. The brokers and Stifel successfully repudiated the Texas-based firm’s raiding claim by saying that their share of branch production was closer to 20%, according to Reif.
The brokers and Stifel declined to comment on any aspect of the case or on Reif’s allegations, said Kevin K. Fitzgerald, a partner at Jones, Bell, Abbott, Fleming & Fitzgerald in Los Angeles who represented them in the arbitration proceedings.
He did not respond to requests for comment about U-5 filings by Southwest against Levinson, Frank, Farmer and Osbourne that they had stolen data or about whether any of his arbitration clients are being investigated by Finra enforcement.
The arbitration panel did not assess lawyer’s fees against Frank, who was the only member of the group to retire rather than go to Stifel. Like the others, he was ordered to pay compensatory damages, interest at a rate of 10% pending full payment and hearing costs.
The total amount of the award to Southwest, $620,000, including $110,000 of compensatory damages, was significantly less than the $6.1 million Southwest requested at the close of the arbitration hearing.
“We were very confident in the strength of our case and are pleased with the outcome of the arbitration,” Dave Geschke, Director of Retail for Hilltop Securities and chief executive of its independent broker-dealer network said in a prepared statement.