Charles Schwab has won a $7.293 million arbitration claim against two of its former advisors and the company that allegedly poached them, Morgan Stanley.
In a twist, the Financial Industry Regulatory Authority’s arbitration panel also ordered Morgan Stanley to pay the two advisors a combined $4.732 million in damages and fees related to their firing after only six days in 2019, shortly after they were lured from Schwab.
The two advisors are Christopher Robert Armstrong, who worked in Schwab’s Red Bank, N.J., office, and Randall Brian Kiefner, who worked in Orlando, Fla. Though they worked in different regions, the two often collaborated on clients, with Armstrong working as the investment advisor and Kiefner as the financial planner.
In response to a request for comment, a Morgan Stanley spokesperson emailed, “We are deeply disappointed with the panel’s decision and are currently considering our options.”
A Schwab official said the firm believed the Finra panel's award was appropriate. "We expect our representatives and firms in the industry to follow their legal obligations to protect customer information. It became necessary in this case to enforce these obligations," he wrote in an email. "The panel's award—which included significant punitive damages—is a reflection of why we take such conduct so seriously."
A call to Armstrong’s current work voicemail was not returned.
In its arbitration claim against Armstrong, Kiefner and Morgan Stanley, Schwab alleged breach of contract, misappropriation of trade secrets, breach of duty of loyalty, tortious interference with contracts and with prospective business relations, unfair competition and civil conspiracy. Schwab also sought unspecified damages of various kinds as well as an injunction preventing Morgan Stanley and the advisors from handling Schwab clients.
Schwab filed the Finra claim on April 5, 2019. By July of that year, the arbitration had become a three-way conflict, as Morgan Stanley and the advisors filed not only counterclaims against Schwab but cross-claims against each other.
In the end, the Finra panel determined that Morgan Stanley and the two advisors collectively owed Schwab $3.026 million in compensatory damages, $1.136 million in attorneys’ fees and $104,834 in costs. Morgan Stanley individually also owed Schwab $3.026 million in punitive damages.
Separately, the panel determined that Morgan Stanley owed compensatory damages of $2.851 million to Armstrong and $1.174 million to Kiefner. In addition, the firm owed the advisors $672,399 in attorneys’ fees, as the panel found that Morgan Stanley had promised the pair it would engage legal counsel for them and “cover everything” if Schwab sued them, the award filing stated.
Morgan Stanley also owed Armstrong and Kiefner $35,372 in costs, the panel said; the firm’s cross-claim was denied.
The brouhaha started when Morgan Stanley recruited the pair in early 2019. Armstrong and Kiefner said they took legal cues from Shumaker, Loop & Kendrick, a Morgan Stanley-referred law firm headquartered in Toledo, Ohio, when they resigned from Schwab on March 29 of that year and immediately started working for Morgan Stanley. The advisors later filed a lawsuit against the law firm, alleging, among other things, malpractice.
According to that lawsuit, the two advisors were told they didn’t have to worry about the four weeks’ notice they were supposed to give Schwab if they ever decided to leave, nor did they have to worry about taking some client information with them, as long as they didn’t take “a banker’s box of documents.”
To hold onto its clients pending arbitration, Schwab filed a statement of claim with Finra on April 5 and also a request in U.S. District Court for an injunction and temporary restraining order. Finra arbitration often takes roughly two years.
Morgan Stanley terminated the two advisors on April 11 as they were preparing to counter the Schwab restraining order, according to the advisors’ lawsuit against Shumaker Loop. That lawsuit alleged that the terminations were “precipitated by a telephone conversation between Morgan Stanley’s chairman and Schwab’s chairman threatening to bring legal action against Morgan Stanley.”
On April 12, the Shumaker Loop lawyers withdrew from the U.S. District Court case right before the hearing on the injunction and restraining order. As a result, the Armstrong and Kiefner lawsuit said, a limited temporary restraining order was granted on April 12, 2019, and then a permanent TRO granted on April 22, 2019, written to last until September 20, 2020.
In the lawsuit, Armstrong and Kiefner alleged that the firm was not representing them, but instead only representing Morgan Stanley, and that the firm dropped Armstrong and Kiefner as clients as soon as they were terminated. This meant they had to handle their own defense in the matter of the restraining order, which they lost, and that they lost any access to their clients or jobs.
In the lawsuit against Shumaker Loop, the two advisors said they were monetarily hurt by their lawyers. “By engaging in the negligent, reckless practice of law and by breaching their fiduciary duties, [attorney Michael] Taaffe and Shumaker directly caused [the] plaintiffs to lose their employment, their ability to earn future income and their ability to earn retirement compensation as a result of the loss of their entire client base,” the complaint stated. “Avoidance of litigation, or mitigation of litigation could have resulted in the plaintiffs being able to transfer most or all of their client assets to another firm.”
That lawsuit is ongoing.
According to BrokerCheck, Armstrong is now at Cetera Advisors in Eatontown, N.J., and Kiefner is no longer registered as either an investment advisor or a broker.