Court Restrains Former Citizens Advisor From Using His Memory to Recreate Customer Names in Transition to Ameriprise
From the desk of Jim Eccleston at Eccleston Law
A federal judge in Boston has temporarily barred former Citizens Securities advisor Darrell Smith from using client names he recalled from memory to contact former customers after moving to Ameriprise Financial. U.S. District Judge Allison Burroughs concluded that Smith likely violated his employment agreements when he remembered client names and notified some customers of his departure.
According to AdvisorHub, Citizens sued Smith and Ameriprise on October 16, alleging unfair competition and other claims. The temporary injunction will remain in place while Citizens pursues a permanent injunction and damages through arbitration before FINRA.
Smith worked at Citizens for 18 years before leaving in September. He told the court that he recalled approximately 150 customer names, located their contact information through public sources, and contacted some to announce his move. According to Smith, 111 clients with approximately $120 million in assets chose to follow him to Ameriprise. Citizens estimated that Smith had managed approximately $194 million in assets.
This decision once again underscores that there absolutely is no national jurisprudence as to what an advisor can do or can take in transitioning to a new firm. According to AdvisorHub, the Massachusetts court based its decision on contract provisions that expressly prohibited advisors from announcing their departure to customers. The court also cited prior rulings recognizing that an advisor can misappropriate confidential client information by memorizing a client list, even without taking a physical copy.
Smith had argued that the restriction "contradicts industry standards" and that his ethical and fiduciary duties required him to notify clients. Citizens countered that those duties applied when Smith provided financial advice, not when he called customers to announce his departure.
The court also relied on a July ruling in a separate Citizens lawsuit against Scott Coppock, another former advisor who left for Ameriprise. In that case, the court concluded that Rhode Island law, which governs both advisors' employment agreements, protects client lists as confidential information even when an advisor commits the names to memory. Once again, the court's reliance underscores that attorneys must non rely on non-existent "industry standards", but, instead, must examine the particular state laws that govern the particular transition in order to properly counsel their clients.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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