Creative Planning, Mallouk, Schwab, Fidelity prevail in referral lawsuit

A lawsuit filed against Creative Planning, its founder Peter Mallouk and the industry's largest custodians failed to pass muster in federal court — at least for now.

U.S. District Judge LaShonda Hunt dismissed the case citing a lack of evidence and specificity in the allegations made by Stephen A. Greco in Chicago federal court and the absence of responses by the plaintiffs to subsequent filings by defendants Creative, Mallouk, Charles Schwab, TD Ameritrade, Fidelity Investments and private equity firm General Atlantic. 

The claims in Greco's 15-count complaint included conspiracy, breach of contract and unjust enrichment, among others. He accused the firms of "wide-ranging unfair and anticompetitive practices and schemes" and an attempt to "to silence Greco and retaliate" by interfering with the business of the registered investment advisory firm he launched after leaving Creative Planning in 2017, Oakbrook Terrace, Illinois-based Spotlight Asset Group, Hunt noted in the ruling. The complaint placed the referrals that Schwab and Fidelity supply at a high cost exclusively to some of the largest RIAs at the center of its case against Creative and the custodians. 

The ruling earlier this month provided Greco with the opportunity to file an amended complaint by the end of next week. Regardless, Hunt's court order took the plaintiffs to task for "an overlong and needlessly complex" complaint and missing answers and details relating to Greco's accusations of a conspiracy based on Schwab, TD and Fidelity referrals, fraud and retaliation against Greco, the onetime director of wealth management at Creative.

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For example, the notion that the firms' client referrals to Creative added up to a conspiracy contains "flawed" reasoning because "the referral agreements themselves cannot constitute direct evidence of an agreement to collude" and there was no so-called smoking gun "direct evidence of the existence of a conspiracy," Hunt wrote in the Sept. 9 order.

"Plaintiffs' allegations in this regard are categorical and lacking in detail but also substantively deficient. Many of the purported motives to conspire (e.g., increased profits, competitive advantage, increase revenue, etc.), boil down to their motivation to increase profits, which always exists and does not give rise to an inference of a conspiracy," she said.

"The bottom line is that the allegations of conspiracy are heavy on theories and labels and light on details," Hunt said. "Furthermore, even reading the conspiracy-based claims in the light most favorable to plaintiffs, they lack adequate factual content about Defendants' conduct to infer the existence of any agreement to engage in the schemes alleged by plaintiffs."

Greco and his attorneys didn't respond to an email seeking comment on the judge's order and the plaintiffs' plans for any future appeals or complaints. He had filed the federal case in May 2022.

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Representatives for Creative Planning declined to comment on the ruling. The company is "gratified with the court's decision as we believe she dismissed claims that are meritless and we intend to vigorously defend against any further action from Greco," Creative attorney Adam Wolfson told industry publication Citywire RIA. Outlets Barron's and The Wealth Advisor had previously reported the ruling as well.

While many financial advisors and competitors criticize the referral programs offered by the retail wealth management divisions of Schwab and Fidelity exclusively to the largest RIAs using the firms' custodial services, none have challenged them in litigation in the same manner and extent as Greco. Hunt's order gave the plaintiffs until Oct. 4 to file the amended complaint.

"The court will first review any proposed amended complaint filed by that date and enter an appropriate order," Hunt wrote.