When Kent Jackson Rhoades left Wells Fargo's branch office in Mountain Home, Arkansas, in October 2016, he took five of his fellow advisors with him.
According to a complaint Wells Fargo later filed with the Financial Industry Regulatory Authority, the move "targeted all the employees of the Mountain Home Branch and resulted in its closure."
Now a three-person FINRA arbitration panel is saying that "coordinated raid" will cost Rhoades and his current brokerage affiliate — Raymond James Financial Services — almost $20 million. The panel's Feb. 2
Mark Elzweig, the president of New York-based executive search firm Mark Elzweig Company, said it's usually a good idea to consult legal counsel when plans to hire a rival's employees threaten to affect 30% or more of a firm's production, assets under management or total headcount.
"That's when you have to make sure you haven't crossed the line and gone from the selective recruiting of individuals or teams versus taking an entire entity and shutting it down," said Elzweig, who helps advisors and brokerages with their recruiting. "That's when it becomes possible that you could be involved in a raiding lawsuit, raiding being an unfair form of competition."
Wells Fargo's complaint, filed in August 2020, accused Raymond James, Rhoades and five other former advisors in the Mountain Home office of unfair competition, breach of contract, breach of fiduciary duty, unjust enrichment and violations of FINRA rules of conduct, among other things. Wells later withdrew its claims against Rhoades' co-defendants — Steven Bettenhausen, David Matty, Janet Schmeski, Michael Stockton and Logan Stone.
In a counterclaim, Rhoades contended that Wells assigned his former clients to other financial advisors following the closing of the Mountain Home office. Wells, according to Rhoades, used "untruths and/or deception" to cause his clients to sever their relationships with him and his co-defendants. Rhoades couldn't be reached for comment.
Rhoades and the five other advisors left Wells Fargo's Mountain Home branch in October 2016 and opened
A Wells Fargo spokesperson said the firm "is pleased with the outcome and appreciates the arbitration panel's recognition of the damages caused by this conduct." Raymond James declined to comment.
Rob Herskovits, the founder of New York-based law firm
Herskovits said Rhoades could argue that he's unable to pay, but his grounds for prevailing on such a claim would be very narrow. If, for instance, it could be shown that Rhoades could borrow the money, he would still have to turn it over.
"If you have a rich uncle and you're a pauper, FINRA's going to say, 'too bad. You should have gone to your rich uncle,'" Herskovits said.
Herskovits said the idea of "raiding" in the financial services industry is still nebulous. Poaching six employees hardly constitutes a deathblow to a firm as large as Wells Fargo. At the same time, an entire advisory office's closing down was likely a big deal in a small city like Mount Home, which has a population of just over 12,000.
"You can't say that to Wells Fargo writ large, it was particularly meaningful," Herskovits said. "But to that Wells Fargo office in that particular town and that state, losing that office was apparently worthy of a successful raiding claim."
Awards as big as the one in the Raymond James and Rhoades case are somewhat unusual in raiding cases. They usually come only when the recruitment of a competitor's employees can be shown to have had significant consequences for the targeted firm's revenues.
In February 2022, for instance,
Two of the three FINRA arbitrators who heard the case eventually found that the four brokers who left Stephens had accounted for "well over 50% of annual production" at the Jonesboro branch. They also found extensive evidence that the raid resulted from a single hiring plan.
