First of Michigan, a Detroit-based regional, has filed an expedited NASD arbitration against Hilliard Lyons, hoping to stem losses from recent broker defections to the Louisville, Ky.-based brokerage.
According to court transcripts, First of Michigan alleges to have lost 70 to 90 employees to Hilliard Lyons, including 50 brokers, in the four-month period from August to November '97. First of Michigan had been acquired last July by New York-based Fahnestock, and brokers reportedly were unhappy with new management as well as with operational glitches since the takeover. One attorney involved in the case says most brokers were being recruited by three to four firms, with the majority going to Hilliard Lyons because of its regional emphasis.
"Brokers weren't happy being connected to a New York firm," says Dennis Egan of Butzel Long in Detroit, who represents Hilliard Lyons. "They liked First of Michigan the way it was, as a regional headquartered locally."
Following the defections, First of Michigan initially went to court where the firm sought and obtained a temporary restraining order (TRO) against Hilliard Lyons on Nov. 7, supposedly the day a large number of brokers departed. FOM sought to prevent Hilliard from accepting business from customers of the brokers who left, and from using records taken from FOM. However, Judge Robert Holmes Bell, the same district court judge who granted the TRO, subsequently overturned it on Nov. 13, ruling that First of Michigan failed to show proof of irreparable harm. He also voiced concern that an injunction barring the departing brokers from contacting clients would not serve the best interests of the public (see rrmag.com, Breakingsection and look for this same story, which includes a transcript of the judge's remarks).
First of Michigan then filed for an expedited NASD arbitration hearing, asking for the same injunctive relief. But right before the hearing was to take place Dec. 18, FOM agreed to withdraw its request to enjoin Hilliard, and Hilliard promised not to hire any more reps until March 1. The firms are now set to do battle in a normal arbitration hearing, which was still unscheduled at press time in early January.