Transitioning Registered Representatives -- Be Wary of Defamation and Tortious Interference

Registered Representatives ("RR") who manage millions of dollars are aggressively pursued and, if and when they depart, invariably attempt to transfer the clients and clients' assets they manage to their new firm.  The departed firms understandably work diligently to retain the assets under management ("AUM").  AUM = $$ for the departing firm, the receiving firm, and the RRs.  During this process, agents of the departing firm sometimes say things to the clients previously serviced by the departing RR in an effort to retain the clients/assets.  Conversely, sometimes departing RRs say things about their former firm or take actions in advance of departure that are inconsistent with common law duties and/or the Borker Protocol.  With regard to the former Firm's coduct, the question is always -- did the prior firm or its agents make untrue, malicious, or anti-competitive statements in an effort to harm the departing RR and/or retain the clients/assets.  If that occurred, the departing RR may have claims for defamation, tortious interference, breaches of contracts, and/or violations of industry standards, rules, and regulations.  These claims, because they involve a RR and a Member Firm, will usually be litigated before a FINRA arbitration panel in the geographic area where the RR last worked for the Member Firm. 

Recently, on February 12, 2013, the NY Post reported that a former RR sued his former employer/Firm, JP Morgan Chase, in NY State Supreme Court because he was allegedly defamed after he departed the firm.  See http://www.nypost.com/p/news/local/manhattan/no_madoff_zsF3i7XcWt6VSrkpQZPsUI.  The allegations of his complaint, Kolta v. JP Morgan Chase & Co., No. 650450/2013, suggest agents for his former employer claimed he was a Madoff-type of RR in an effort to retain clients and client assets.  An allegation that would likely be defamation per se.  While this case was filed in New York Supreme Court, it remains to be seen whether JPMorgan Chase will file a Motion to Compel arbitration before a FINRA arbitration panel.  We'll keep you posted about both the venue and substance of this case as it proceeds.