Morgan Stanley is suing a former advisor in federal court, claiming he’s breaking his restrictive covenants after starting a new practice and custodying with Charles Schwab.
Morgan Stanley filed the suit seeking a temporary restraining order against Zakariah Gardezy in Arizona federal court, alleging he was in breach of contract after leaving the firm earlier this month.
Gardezy joined Wells Fargo in 2017, and in 2021 he departed for Morgan Stanley, according to his BrokerCheck profile. This lawsuit was first reported by AdvisorHub.
Gardezy was a financial advisor associate when he resigned, with Morgan Stanley claiming he’d “developed little business on his own.” The firm allegedly placed him with a team of advisors managing approximately $2 billion in assets (with nearly $8 million in gross annual revenues).
Through this pairing, Morgan Stanley claimed Gardezy gained privileged access to clients; additionally, Morgan Stanley transferred existing clients with tens of millions in assets to Gardezy, according to the suit. Many of the referrals for Gardezy’s team came from Morgan Stanley’s E*Trade division (the wirehouse purchased that firm in 2020).
On March 15, Gardezy resigned from Morgan Stanley’s office in Scottsdale, Ariz. Unlike many who depart for an established firm, Gardezy set up a solo practice, Whitestone Private Wealth Management.
Gardezy registered the firm with the SEC the same day he resigned (though his registration as an advisor has not yet been updated). The firm didn’t report any initial assets in its Form ADV as it was a “newly registered advisor.” Gardezy did not respond to a request for comment prior to publication.
The firm custodies its client assets through Schwab and touts itself as a fee-only fiduciary firm, offering “comprehensive financial planning, in-depth portfolio analysis, along with meticulous investment management, all delivered with a cost-conscious approach and the personalized touch of a boutique family office,” according to its website.
After resigning, Gardezy allegedly contacted Morgan Stanley clients, including many who were originally referred to Gardezy from E*Trade. According to the suit, Gardezy offered “significant fee discounts” if clients ditched Morgan Stanley for Whitestone. In the case of one former E*Trade client, Gardezy promised a 50-basis point fee discount if the client moved firms.
“In addition, shortly after (Gardezy’s) resignation, another client confirmed to Morgan Stanley that (Gardezy) had already reached out to the client and during the client’s telephone call with Morgan Stanley, confirmed that (Gardezy) was telephoning the client ‘as we speak,’” the complaint read.
In a statement, a Morgan Stanley spokesperson said the wirehouse “will take appropriate action to ensure that departing employees comply with their legal obligations.”
In addition to the suit and the request for a restraining order, Morgan Stanley also filed an arbitration against Gardezy with FINRA, claiming the b/d regulator will schedule an expedited hearing on Morgan Stanley’s request for a permanent injunction within 15 days.
