By Andrew Welsch
Charles Schwab is suing one of its former financial advisors for allegedly violating a nonsolicitation agreement after he left the company earlier this year to work at another wealth management firm.
The departed advisor, Roberto Ortega, served high-net-worth clients with more than $1.5 billion in assets when he worked at Schwab, according to the company's lawsuit, which was filed this week in a federal court in Houston.
Ortega left Schwab in July and registered with registered investment advisory firm Nhabla in October, according to registration records. The two-person firm has just $108,660 in assets under management, according to its most recently filed Form ADV.
Schwab's lawsuit claims that Ortega accessed client records prior to his resignation. Schwab believes he "has used, and is presently using, Schwab's misappropriated trade secrets in furtherance of wrongful solicitation of its clients," according to the lawsuit.
The company is asking a federal judge for an injunction barring Ortega from contacting clients and to force him to return any Schwab client data he may have. The company also filed an arbitration claim against him, according to the complaint.
A company representative said in a statement: "Schwab considers the protection of client information and confidentiality to be of utmost importance and expects that its representatives will comply with their contractual and legal obligations. We intend to enforce our rights and hold Mr. Ortega accountable for violating his obligations and taking Schwab's confidential information."
Ortega didn't respond to requests for comment sent via phone and social media.
Nonsolicitation disputes between brokerage firms and departing advisors are common. An industry agreement, known as the Broker Protocol, permits advisors switching between member firms to take basic client contact information with them, but Schwab is not a member of the protocol.
All of the company's registered representatives are required to sign a confidentiality and client nonsolicitation agreement. Ortega did so on Jan. 19, 2022, according to Schwab's lawsuit. He joined the Westlake, Texas-based company that year after having worked at Fidelity from 2015 to 2022, according to registration records.
Schwab's lawsuit says it provides not only support and training to its advisors, but also a potential pool of existing Schwab customers to serve.
In addition to nonsolicitation provisions, the agreement Ortega signed required him to provide Schwab with four weeks' notice of his resignation and not take Schwab's confidential client information, "specifically including the identities of its clients, their names, telephone numbers, or any other personal or financial information."
The company's legal complaint says Schwab reviewed his activity on Schwab's systems prior to his resignation and found that "without any apparent legitimate business reason, [Ortega] reviewed in rapid succession 1,689 client-overview screens in a proprietary Schwab database on May 6 and May 7." The complaint says he repeated this activity over the subsequent weeks.
Calling attention to advisors' computer activity is not unusual in nonsolicitation lawsuits. In recent years, other firms have pointed to similar forensic details to bolster legal arguments for injunctions against former advisors accused of violating nonsolicitation agreements.
Write to Andrew Welsch at andrew.welsch@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 19, 2024 16:00 ET (21:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments