Panel orders ex-Morgan Stanley brokers to pay Schwab

A FINRA panel has ordered a pair of ex-Charles Schwab advisors to pay nearly $3 million to their former employer over a botched recruiting move by Morgan Stanley..

Christopher R. Armstrong and Randall B. Kiefner have been mired in litigation since being sued by Schwab in April 2019 only about a week after leaving the firm on a Friday to start working at Morgan Stanley later the same day. Schwab took legal action against the pair in federal court in New Jersey over allegations that they had not abided by a nonsolicitation agreement forbidding them to reach out to former clients for 18 months and had violated prohibitions on taking customer information with them.

The dispute has since played out in multiple forums and levels of the U.S. judicial system.

In February, a Financial Industry Regulatory Authority arbitration panel ordered Morgan Stanley and the two brokers to pay Schwab a little more than $4.2 million in compensatory damages and attorneys fees and costs and ordered Morgan Stanley to pay an additional $3.03 million in punitive damages. In a twist, Morgan Stanley — which fired Armstrong and Kiefner about a month after hiring them — was also found at fault in its handling of the recruitment of the pair. The firm was separately ordered to pay the advisors $2.85 million and $1.17 million in compensatory damages, respectively, as well as attorney's fees and costs. 

Despite not agreeing with the dispute's outcome, Morgan Stanley said it has paid everything the arbitration panel found it owed Schwab. That has not been the case, though, for Armstrong and Kiefner; Morgan Stanley said in court documents that the pair has yet to transfer their roughly $2.8 million share of the total owed Schwab.

Rather than suffer yet more legal entanglements, Morgan Stanley agreed in April to take the amount of the money it owes Randall and Kiefner and set it aside in an escrow account for possible payment on their behalf to Schwab. Morgan Stanley meanwhile went back before a FINRA arbitration panel to seek an order finding that its pair of former brokers still owe Schwab money.

"While Morgan Stanley does not agree with the arbitration panel's decision, we will fully comply with it," a Morgan Stanley spokesperson said previously. "By contrast, Armstrong and Kiefner have refused to pay their proportionate share, despite the panel's express finding that they are jointly liable. This action is intended to ensure they pay in accordance with the panel's determination against them."

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Morgan Stanley emerged victorious in its latest arbitration battle on Nov. 7. In a unanimous decision, three FINRA arbitrators ordered Armstrong and Kiefner to pay Schwab $1.44 million each.

That will come out of the money Morgan Stanley is holding in escrow. That transfer leaves Armstrong with $810,500 and Kiefner with $333,789, plus roughly $700,000 in attorney's fees, from what Morgan Stanley was ordered to pay them in the original arbitration award.

A Morgan Stanley spokesperson declined to comment on the case. Armstrong and Kiefner's lawyer, Clinton Marrs of Albuquerque, New Mexico-based Marrs Griebel Law, did not immediately respond to a request for comment.

Separately, Armstrong is suing the law firm Shumaker, Loop and Kendrick and one of its lawyers, Michael Taaffe. That legal team was brought in by Morgan Stanley shortly before Armstrong and Kiefner were hired to advise them on what they legally could and couldn't do when leaving Schwab. 

According to the suit, the pair initially believed the firm was offering them independent legal advice. They're accusing Shumaker, Loop and Kendrick, as well as Taaffe, of failing to divulge their history of working with Morgan Stanley on previous cases.

Armstrong's lawyer in that case, Jim Eccleston of Chicago-based Eccleston Law, said Kiefner was originally a party to the dispute but has since dropped out.

"It's been very contentious — lots of motions and lots of court appearances," he said. "But it's moving forward."

Jody Papike, the CEO of the recruiting firm Cross-Search, said she always recommends advisors hire their own lawyers any time they are thinking of going independent.

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"Especially if there is any kind of sticky contract, don't listen to anyone other than a securities attorney that you've retained and who is working on your behalf," she said. "It's absolutely in your best interest to hire your own legal counsel, preferably a securities attorney who is used to working on these contacts and can tell you how you can approach your clients, what you can't and can do and maybe even give you a script of the words you can use if were to reach out to your clients."

Armstrong has been registered with the independent broker-dealer Cetera advisors in Eatontown, New Jersey, since June 2022. Kiefner, who hasn't worked in the industry since being fired by Morgan Stanley, was meanwhile arrested in April on 21 counts of possessing child pornography. His case is now pending in Seminole County, Florida.