Judge denies Merrill TRO request with $129B breakaway

A judge has rejected Merrill’s request for a temporary restraining order against a large group of advisors formerly managing $129 billion who broke off last week to launch their own firm.

Judge Victoria Calvert, for federal court in the Northern District of Georgia, declined to issue a restraining order barring the advisors from soliciting their former clients for a year and using any confidential client information they may have taken with them. Merrill sued the principal former members of its Global Corporate & Institutional Advisory Services, or GCIAS, team last week after they left to form a firm called OpenArc Corporate Advisory in Atlanta.

Merrill accused the group of conducting a “pre-meditated corporate raid” of its offices in the Atlanta suburb of Peachtree City. It said in a filing this week that more than 100 employees have announced their resignations since the team announced its departure, including at least 67 advisors. The $129 billion the team had overseen at Merrill had consisted largely of assets in equity-compensation and retirement plans, which aren’t typically as easy as regular advisory accounts to move.

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Merrill’s request for a restraining order was meant in large part to stop the OpenArc advisors from soliciting their old clients for the new firm while the dispute made its way to a Financial Industry Regulatory Authority arbitration panel. With its restraining order rejected, Merrill can still press its claims in FINRA arbitration, but it has less power to prevent assets and employees from moving to OpenArc.

Merrill aims to prevent ‘poaching’; Dynasty celebrates a ‘watershed moment’

A Merrill spokesperson said in a statement that the hearing on the restraining order “is only​ the first step in the litigation process. We look forward to vigorously pursuing this matter in arbitration and are confident that a FINRA panel will agree that the defendants engaged in a corporate raid and conspired to poach our employees and clients.”

Along with OpenArc and its founders, Merrill sued two other firms last week: the large RIA network Dynasty Financial Partners, which is providing various back-office services to OpenArc, and financial services firm Charles Schwab, which OpenArc chose as its custodian entrusted with holding client assets for safekeeping. The firms were accused of conspiring with the breakaway team to take the GCIAS business away from Merrill. Dynasty, for instance, is alleged to have provided $90 million in financing to help the OpenArc group get their firm up and running.

Dynasty CEO Shirl Penney said, “Today’s court decision is a watershed moment for the wealth management industry. It acknowledges the strength and sophistication of the independent movement. 

 “We will always stand for and advocate for client and advisor choice which is at the core of what the independent movement is all about,” Penney added.

The OpenArc advisors struck back against Merrill’s allegations in court last week, questioning the validity of the raiding claims. They argued raiding can exist only when a recruiting firm removes a large business from a competitor. That’s not what happened in this instance, they contended, because they weren’t recruited away from Merrill. Rather, they left as a team to start their own firm.

They also accused Merrill of failing to invest meaningfully in their business division over the past five years, leading to outdated technology and “staggering losses of clients.” A declaration submitted by one of the advisors asserted that an internal assessment found that more than $150 million needed to be spent but even that would not “meaningfully address the root cause of [Bank of America’s] challenges,” and that the business had lost more than 100 equity plans, leading to an eventual loss of $45 million in revenue.