BrokeAndBroker.com Blog publisher Bill Singer Esq. is no fan of non-solicit/non-compete provisions. Sure, there could be . . . there are . . . compelling fact patterns when a departed employee may have really gone over the edge and deserves to have the crap sued out of him. On the other hand, given that Wall Street is the purported bastion of free enterprise and Capitalism, it's a tad cynical to exalt the benefits of free markets and competition but, you know, then go sue folks for practicing what you preach. Bill often counsels employer-brokerage-firms to handle departing employees with class and grace. Wish 'em well. Let 'em know how much you valued their contribution and how much you regret the departure. Shake hands. Send a bottle of champagne or something when they open their new shop. Let 'em know that if things don't work out, you would always welcome an opportunity to renew the professional relationship in the future. Not a lot of brokerage firms follow Bill's advice. A more popular option is the scorch-the-earth-and-send-'em-a-message gambit. Sometimes it works. Sometimes not. Read about a recent federal case involving Edelman Financial Engines, LLC.
In a Complaint filed in the United States District Court for District of Massachusetts https://www.sec.gov/litigation/complaints/2022/comp25430.pdf, the SEC charged Bradley Moynes and Digatrade Financial Corp with violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Vancap Ventures, Inc. was named as a relief defendant. As alleged in part in the SEC Release:
The SEC's complaint alleges that Moynes was the President, CEO and Director of two small and thinly traded companies, Formcap Corporation and Digatrade, whose stock was publicly traded in the U.S. securities markets. According to the complaint, Moynes used foreign nominee companies to hold stock in these microcap companies, thus concealing his ownership. The complaint alleges that he and his associates generated demand for his stock by paying promoters to tout the stock and then secretly sold his stock into that demand, generating substantial illicit profits from unsuspecting investors.
Moynes allegedly violated the U.S. securities laws because he defrauded investors by concealing information about his ownership and control over the stock he was selling. Moynes allegedly signed numerous filings with the SEC that contained misstatements about his ownership of Digatrade shares. Moynes allegedly misled investors, brokers, and transfer agents (companies that maintain records of stock ownership) in order to convince these parties that his stock shares were eligible for trading in the public markets. The complaint alleges that, as a result of Moynes' deceptive conduct, investors buying the stock he sold were deprived of important information-that the stock they purchased was being dumped by the President and majority shareholder of the company.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Patrick Reid Murray submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Patrick Reid Murray was first registered in 1989, and by 2009, he was registered with UBS Financial Services Inc. In accordance with the terms of the AWC, FINRA imposed upon Murray a $5,000 fine and a one-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
In March 2018, Murray and two other individuals established a company called Integrity
Salt, LLC (Integrity) to buy and sell rock salt by filing articles of organization with the
Ohio Secretary of State. Murray made capital contributions to Integrity and made at least
one vendor payment on behalf of the company by wiring more than a million dollars
from his personal account directly to the vendor. Murray also earned approximately
$78,704 in compensation from his Integrity-related activities.
Murray did not provide prior written notice to or obtain UBS's approval before
commencing his outside activities with Integrity. In July 2018, Murray also inaccurately
certified that he was in compliance with the firm's WSPs relating to outside business
Therefore, Murray violated FINRA Rules 3270 and 2010.
Bill Singer's Comment: Oh for godsakes, really? Consider this disclosure in the AWC:
In a Uniform Termination Notice for
Securities Industry Registration (Form US) dated October 15, 2021, UBS reported that
Murray had been discharged after a firm review determined that he exceeded the
approved scope of an outside business activity.
So . . . Murray got fired by UBS in 2021 because he went into the rock salt business in 2018. Okay, sure, whatever. Then, on top of losing his job, FINRA socks Murray with $5,000 in fines and a one-month suspension.
Let's just make sure that we are all on the same page as things are spelled out in the AWC.
First, Murray and two others filed articles of organization for a rock salt biz in 2018. One could argue that the filing does not rise to the level of "engaging" in an outside business as much as preparing to do so.
Second, Murray made a capital contribution. Again, one could argue that funding a start-up is preparation to engage in a business and not the actual activity of being in business.
Third, Murray took cash out of his own pocket and wired that to a vendor. Perhaps you need to buy $1 million of rock salt to be able to sell any rock salt, so, again, this could easily be characterized as the preparation to engage in a business, which seems all the more reasonable since the payment was not issued from the company but undertaken personally by Murray.
Fourth, the AWC claims that Murray "earned" $78,704 in compensation from the company's "related" activities. That's an odd turn of a phrase.
Missing from the AWC is any statement as to Murray's explanations. Perhaps Murray did not feel that he had engaged in an outside business because Integrity Salt hadn't actually moved forward to the point of being an ongoing business. Perhaps Murray covered up his activities. Perhaps Murray misunderstood what he needed to disclose to UBS and when. I dunno. The AWC sure as hell doesn't clarify anything. Did all of this amount to the basis for termination, suspension, and a fine? Perhaps -- but FINRA doesn't present any facts that convinces me of its case.