Stifel’s Raiding Suit Against RIA Adds to Pile of High-Stakes Claims

Stifel Financial, in hot pursuit of a team of nearly three dozen ex-employees who left to launch their own registered investment advisor firm in Indianapolis, has brought a lawsuit in federal court claiming that the exodus was tantamount to a “illicit” coup and emptied an entire office.

On Feb. 28, St. Louis–based Stifel filed a lawsuit in the U.S. District Court for the Eastern District of Missouri against Sapient Capital, alleging that the newly formed RIA conducted a “raid of Stifel’s employees and business” and engaged in “false advertising” indicating that Stifel’s Indianapolis NW office, also known as The KCP Group, had become Sapient Capital and that Sapient Capital controlled the clients and their assets. The office opened in 2005, and Stifel in recent months had entered into a new 10-year lease for the space, according to the lawsuit.

Stifel noted in the claim that, as of Feb. 16, the Indianapolis NW office had more than 30 employees, about 7,500 clients’ accounts and about $10 billion in client assets. Stifel said in the claim that on Feb. 17 the office’s three managing directors — Jamie KnallThomas Pence and Jeffrey Cohen — as well as its chief operating officer, Andrew LeBlanc, staged a “coup” that saw the departure of more than 30 employees and indicated that Sapient — which is majority-owned by Knall, Pence and Cohen — was the new owner of Stifel’s business.

The filing did not specify a dollar amount for damages being sought by Stifel.

A spokesperson for Sapient Capital told FA-IQ via email that on Feb. 17, the KCP Group “ended its 17-year relationship with Stifel” and launched the RIA firm Sapient Capital, in part to build a “platform of alternative investments.”

“With respect to any legal actions by Stifel, we are disappointed that the company chose this route, particularly in light of the company’s prior public statements concerning the Broker Protocol and criticism of other firms ‘using the courts to prevent client choice.’ We believe any such claims are meritless and we plan to vigorously defend against them,” the spokesperson said.

The spokesperson did not respond, as of this publication’s deadline, to a request for Sapient’s response to Stifel’s claim that it represented itself to clients as the new owner of Stifel’s business.

A spokesperson for Stifel, which is a signatory to the protocol, declined to comment on the lawsuit.

Stifel’s suit is the latest entry into a growing ledger of raiding claims filed between wirehouses, broker-dealers and RIAs that can sometimes result in high-dollar remedies ordered for the aggrieved.

In February, Wells Fargo was awarded nearly $20 million by a Financial Industry Regulatory Authority arbitration panel in a claim against Raymond James and a former Wells Fargo advisor for carrying out a “coordinated raid” at Wells Fargo’s branch office in Mountain Home, Arkansas. Raymond James has since filed a petition to vacate the award, as reported.

Separately, in February last year, JPMorgan settled on undisclosed terms a lawsuit against Chicago-based RIA Cresset Asset Management for allegedly poaching several advisors, as reported. JPMorgan had accused Cresset of regularly plucking from its private banker ranks resulting in a “loss of tens of millions of dollars in client assets and substantial revenue.”

Another Finra arbitration panel in January last year ordered Benjamin F. Edwards & Co. to pay more than $18 million to Stephens over allegations of poaching. Stephens had claimed BFE poached four of six brokers at its Jonestown, Arkansas office over an 11-month span starting in 2016.

What constitutes a raid often hinges on factors ranging from geographic region to the number of employees involved, according to industry lawyers not involved in the Stifel case.

The departure of the majority of employees in an economic unit is “one of the central tenets of a raid,” and the unit would have to be “somewhat effectively put out of competitive business,” according to Brian Neville, a partner at New York–based law firm Lax & Neville.

Neville noted that in the Stifel case, it wouldn’t be a raid “if everyone in that branch had made independent decisions that they didn’t like working there and they all went to 30 different firms.”

While the employees in the Stifel case going to the same firm “is a huge distinguishing factor,” it still might not constitute a raid, according to Neville.

“Typically, in a raiding case you have a firm that targets that economic unit. Using the example of the Raymond James case, the allegation there was that Raymond James targeted an office and put it out of business. Here, in pretty stark contrast, there were a bunch of people at an office and they decided to leave — they’re employees at will, they’re free to leave,” Neville said.

Location is another determining factor in raiding cases, according to Robert Herskovits, managing member at New York–based law firm Herskovits PLLC.

“I suspect that the cases that are going to be successful are ones in which it’s probably a smaller region by population,” Herskovits said, noting the location of the office in the Wells Fargo and Raymond James case in the southern Ozark Mountains.

Instances in which people have “orchestrated a move” or when “an entire office, a business line or something close to it” has been poached are other determining factors in successful raiding cases.

“Stifel isn’t a small broker-dealer, but 30+ people from one region — that’s going to hurt Stifel,” Herskovits said.

Raiding cases can also hinge upon the conduct of the individuals leaving, particularly whether they contact clients before they leave or take client information with them, according to Rogge Dunn, a Dallas-based lawyer at his eponymous firm Rogge Dunn Group.

“If they don’t leave professionally, it makes it much easier to win one of these lawsuits,” he said.

A case might also swing in favor of the firm a team has left if there’s a pattern in which departing teams go, according to Dunn.

“If new-co has raided old-co multiple times recently, then arbitrators are more receptive to saying, ‘This is a lift out where new-co has gotten information about what old-co is paying people and they’ve made a concerted effort to raid top employees.’ If it’s a one-off, then it’s tougher to win,” he said.

Firms may also file lawsuits against departing teams simply to discourage other teams from following and other firms from raiding, according to Dunn.

“Oftentimes old-co goes after departing employees to enforce noncompetes or non-solicits as a deterrent effect. If one of your biggest teams leaves with impunity, everyone else looks around and thinks, ‘If the A-team can leave and they’re not going to do anything about it, they’re sure not going to come after me,’” he said.

“By the same token, other firms look around and think, ‘Old-co didn’t take action, so there isn’t any consequence if I raid,’” he added.

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