Broker-dealer Triad Advisors and its $1.7 billion AUM registered investment advisor subsidiary, the Atlanta Capital Group (ACG), are involved in a legal tit-for-tat over the latter’s desire to break away and form its own broker-dealer.

In October 2016, Atlanta-based Triad filed a claim with Finra arbitrators arguing that ACG’s attempts to break away broke a restrictive covenant that bound ACG to Triad for a certain number of years and prevented them from working with third-party broker-dealers.

"As a matter of policy, we do not publicly discuss ongoing legal matters," said Joseph Kuo, a spokesperson for Triad Advisors, in an e-mailed statement. Triad declined to answer questions or issue further statements on the matter.

Triad’s claim identifies ACG principals David Millican, Jeffrey Shaver and Joseph Young as defendants. According to the complaint filed with Finra, Millican, Shaver and Young—after registering with Triad—asked to borrow money from the broker-dealer to fund acquisitions and the expansion of their branch office.

In return for financing ACG’s growth via a promissory note, Triad in 2012 required Young, Shaver and Millican to sign a restrictive covenant, an agreement that they would remain associated with Triad during the term of their loan repayment and for an additional five years afterwards, and during such time not affiliate with any broker-dealer other than Triad Advisors.

Triad alleges that Millican, Shaver and Young started to plan to form their own broker-dealer in November 2015, at which time ACG had not fully repaid its debt to Triad. Eventually, in October 2016, the ACG principals began to resign from Triad, starting with Millican on Oct. 3.

Triad filed its complaint on Oct. 21, alleging that Millican, Shaver and Young had executed a comprehensive, long-term plan to violate their agreement.

Along with its complaint, Triad filed in local courts for a temporary restraining order against ACG’s principals preventing them from registering with any other broker-dealer, soliciting other Triad employees or contractors, and soliciting or diverting Triad clients. Triad also sought monetary compensation for legal fees incurred as part of its action.

On Oct. 28, a Fulton County Superior Court judge in Atlanta denied Triad’s request for a restraining order.

In early April, Millican, Shaver and Young filed a response that claimed the complaint lacks merit and which brought counterclaims against Triad.

The counterclaim gives a different account of the dispute, arguing that when the restrictive covenant was signed in 2012, then-Triad CEO Mark Mettelman promised the principals that the covenant would not be enforced. ACG’s claim states that if Mettelman had not made the promise, it would never have signed the promissory note.

Later, in the spring of 2014, ACG received permission from Triad to form an investment fund and hired a full-time employee to set up and run the fund. At the time, Millican had estimated that it would cost ACG $1.1 million to establish the fund.

“(The fund) is important,” Jody Young said via e-mailed comments. “The high-net-worth clients served by ACG Wealth want access to alternative investments and private equity in addition to traditional stocks and bonds, especially in today’s marketplace. They typically do not want off-the-shelf, one-size-fits-all investment opportunities.”

With Triad’s approval in place, ACG says that it proceeded to form the fund until asked to halt the process in the fall of 2015. At that time, the fund was in place but no client assets had been invested and thus revenue had not yet been generated.

According to ACG, Triad’s parent company, Ladenburg Thalmann, had instructed Triad not to allow ACG client money to flow into the fund, thus it was unable to recoup the $1.1 million it had spent to start the fund—raising the question of whether ACG’s dispute is with Triad Advisors or Ladenburg Thalmann.

Over the next year from autumn 2015 to autumn 2016, ACG alleges that it not only informed Triad on several occasions that it would need to disassociate from the broker-dealer to operate the fund and recoup its losses, but that Mettelman and other Triad representatives agreed to allow ACG to leave with “no resistance” and that the “transition would be smooth.”

In the summer of 2016, Millican, Shaver and Young formed their own broker-dealer, MSY. At this time, ACG alleges that the three once more obtained permission to transfer their assets from Triad to the newly formed entity.

“They left us with no choice but to create our own broker-dealer, which has cost us time, energy and money,” said Young. “At the end of the day, though, we’ll finally be able to offer a platform that will better serve our clients and our advisors.”

An Aug. 3 letter from Triad stated that Atlanta Capital had repaid its promissory note, but reiterated that a restrictive covenant remained in place for the five-year period beginning on May 31, 2016. But it did not state whether or not Triad intended to enforce the covenant.

ACG’s counterclaim alleges that Millican, who resigned from Triad on Oct. 3, was not informed of Triad’s intent to enforce the covenant and revoke consent for ACG to leave the broker-dealer until the original claim was filed on Oct. 21.

ACG argues that Triad breached its agreement, misrepresented itself when it gave permission to form the investment fund and broke a promise not to enforce the restrictive covenant.

ACG argues that restrictive covenants signed as part of a promissory note are unenforceable, as Georgia law does not recognize such provisions between lenders and borrowers, and that Triad and Atlanta Capital technically never entered into an employment agreement or an employee-employer relationship. As proof, ACG has entered into evidence a statement on Triad’s website referring to the “independence” of its affiliated financial advisors and recognizing their affiliates “may decide to leave us and affiliate with other financial services firms.”

Furthermore, ACG argues that enforcement of the restrictive covenant has harmed their ability to serve their clients and has led to monetary losses, while Triad cannot definitively show that ACG acted with malice or intent to injure, or that ACG attempted to improperly solicit any Triad customers or contractors.

In its counter action, ACG seeks compensatory damages in an amount to be determined and such other relief as Finra’s arbitrators find suitable.

In the interim, Young said, MSY has changed its name to Arkadios Capital and continues to serve its clients as the dispute with Triad finds its way through the court system.