Hightower has forcefully responded to a recent lawsuit brought against the giant RIA aggregator by a former advisor and has charged the advisor, Lars Knudsen, with diverting Hightower funds, misappropriating trade secrets and improperly allocating client fees.

Hightower Holdings also said in a filing in response to  Knudsen's lawsuit, that he created a “hostile work environment” through a “pattern of severe verbal abuse and bullying Hightower Bellevue’s employees.” As plaintiff, Hightower also asked in its action for injunctive relief in aid of arbitration against Knudsen filed yesterday in the District Court for the Northern District of Illinois. “Accordingly, Hightower terminated Knudsen on February 26, 2024,” Hightower said in the filing.

Hightower entered its filing as part of its attempt to challenge a lawsuit Knudsen and his ownership entity Telos Investment Holdings Inc. filed Wednesday charging Hightower with breach of contract, poaching his clients and enforcing sweeping non-compete agreements. Hightower is also seeking to resolve the disupte though arbitration rather the courtroom.

“As a material term of Hightower’s acquisition of a share of Knudsen’s business, Knudsen agreed to certain post- sale restrictions on activities which were designed to protect Hightower from unfair competition, and to protect Hightower’s investment in the business it acquired from Knudsen,” Hightower said in its complaint. “Knudsen is currently in violation of those post-sale restrictions, and further substantial breaches of these restrictions by Knudsen are imminent.”

Hightower is asking the court to “preserve the status quo pending arbitration and to stop the ongoing irreparable harm it is currently suffering.”

In response to Hightower’s complaint, Knudsen filed today a two-week temporary restraining order motion against Hightower, some affiliates and defendants listed in his earlier suit in King County. A hearing on the motion is being scheduled.

"It’s not surprising that Hightower is taking the low road. That’s what they do,” Knudsen’s lawyer, Andrew R. Escobar, a partner at Seyfarth Shaw LLP, told Financial Advisor in an email statement. He called their claims “outlandish and unproven” and meant to cover up the real issues of Hightower’s “unenforceable non-compete and accountability for their false and derogatory comments about Lars.”

“Their sole motivation is greed,” he added. “They are attempting to systematically run Lars out of his profession to poach his clients' millions in assets. It's clear they'll say and do anything to make that happen."

In its filing, Hightower said it became aware of Knudsen’s actions through internal investigations conducted in late 2023 and early 2024.

“Hightower learned that Knudsen was engaged in a scheme of self-dealing and corrupt diversions of funds rightfully belonging to Hightower (and his Partners), as well as a scheme of charging personal expenses to Hightower and improperly allocating client fees,” Hightower said in the filing.

In December of 2018 and January 2019, Hightower and Knudsen executed a series of agreements that lead to Knudsen and partners forming Hightower Bellevue Advisors, the place where Knudsen exhibited “ongoing behavioral issues,” according to Hightower.

Knudsen and partners then sold a stake of that business to Hightower, and signed a Standard Protective Agreement, or SPA, containing non-solicitation, non-hire, non-interference, and non-compete restrictive covenants, as well as non-disclosure provisions related to the use of confidential information, Hightower explained in the filing.

“As consideration for the Acquisition, Knudsen received not only substantial monetary and equity compensation, but also access to confidential and proprietary Hightower information,” Hightower said.

The defendant, according to the filing, asked for and received a Hightower client list containing confidential contact information that Knudsen has been using, since being terminated, to, among other things, disparage Hightower. The former advisor has also told clients to delink their accounts or otherwise stop working with Hightower.

Furthermore, Knudsen is “in the final stages of becoming affiliated as an investment adviser with Hohimer Wealth Management, whom Hightower considers a direct competitor.”

These acts, Hightower argued in the suit, “violate the clear terms of the SPA” and the federal Defend Trade Secrets Act.

Hightower is petitioning the court to enjoin Knudsen from further breaching his contractional obligations and to return all confidential information and trade secrets to Hightower.

Through this preliminary injunctive, Hightower said it wants the status quo maintained until its “substantive claim for damages can be adjudicated in American Arbitration Association arbitration as required by the SPA.