In an unusual raiding case involving a discounter and a full-service firm, an NASDR arbitration panel in March awarded more than $1 million to Charles Schwab in a claim against Salomon Smith Barney, including $700,000 in punitive damages.
But the case was later settled for a lower undisclosed amount.
Citing language required in the settlement with Salomon Smith Barney, Linda Drucker, a Schwab attorney, says that rather than go through a lengthy appeal, Schwab settled with Smith Barney for a lesser confidential amount.
The arbitration award included individual assessments of roughly $10,000 apiece against Schwabs former branch manager in Hyannis, Mass., David Kirkwood, and broker Patience Taylor, and an assessment of $4,999 against Smith Barney branch manager John Wellington.
But the amount of the arbitrators award shows that arbitrators do consider this conduct more egregious when customer information is taken from a discount brokerage firm, Drucker says. No [discount] rep can claim that a customer is his or her personal customer. The accounts werent developed by these reps.
What seems to have rankled the arbitrators is that while the two reps were still employed at Schwab, they sent Smith Barney copies of 200 computerized pages containing detailed information on 200 Schwab clients. Smith Barney used the information to
repare mailings in advance of the brokers move. The arbitrators noted in their findings that the Smith Barney legal department had advance knowledge and approved of this breach.
rucker says Schwab has had instances in which a few brokers leave and make phone calls to a handful of clients theyve worked with. But she claims the firm has never had a massive theft of our computerized records.
The case was filed in August 1996. At the time Smith Barney and the brokers were enjoined from using confidential Schwab information. The injunction was continued through March 1998 when the decision was rendered, Drucker says.
One of the factors that determined the size of the award was that Schwab lost approximately 35 accounts to Smith Barney, including one multimillion dollar account, Drucker says. Another large account subsequently transferred back to Schwab, she adds.
Salomon Smith Barney declined to comment on the case.
