A large wirehouse breakaway team, its platform provider and its custodian are all fighting to keep their just-launched business running amid allegations from Merrill Lynch that the parties orchestrated a “corporate raid” to launch the firm.
In federal court filings in an Atlanta-area district, new RIA OpenArc Corporate Advisory, its investor Dynasty Financial Partners and custodian Charles Schwab, all rebuffed accusations by Bank of America’s Merrill that the lead advisors ran afoul of the Broker Protocol in their dealings with potential future clients and with internal moves to bring other advisors with them. The trio also claims Merrill did not negotiate in good faith with the advisors concerning their potential departure, and sought to smear the new firm in the press by sending the complaint to reporters.
The dispute stems from an RIA breakaway from a wirehouse that is unprecedented in scale. The team, formerly part of Merrill’s Global Corporate and Institutional Advisory Services, had previously advised on $25 billion in wealth assets and approximately $100 billion in assets for institutions, and has 77 advisors on staff, according to its website. The group left to form Atlanta-based OpenArc, part of the Dynasty network, which is also a minority investor, and custody with Charles Schwab.
However, news of the move first broke after allegations were filed by Merrill in the Northern District of Georgia courts. Merrill accused the lead advisors, Dynasty and Schwab, of running a “premeditated corporate raid” that could do “irreparable harm” to Merrill. The New York-based wirehouse also filed an injunction calling on the court to halt the advisors from conducting business, including working with clients.
In Merrill’s complaint, it argued that the defendants had been “collaborating to solicit and encourage Merrill’s employees to leave the employ of Merrill, misappropriate Merrill’s proprietary and trade secret information, and solicit Merrill’s customers to transfer their business and accounts to defendants.”
Responses Filed
On Friday, the defendants filed separate motions to resist the restraining order, arguing that any disputes should be settled by FINRA arbitration, rather than in federal court.
In the response filed by the lead financial advisors of OpenArc, including senior managing partner Erik Bjerke, they argued that they followed procedure under the Protocol for Broker Recruiting, an agreement between securities firms that allows for advisors to take certain client contact information with them when they leave if both firms are part of the protocol. OpenArc, the advisors argue, had become part of the Broker Protocol when the client information was gathered.
“Defendants have submitted to this Court sworn testimony that they complied with the industry-observed Protocol for Broker Recruiting, and thus did not impermissibly remove any confidential information from Merrill and did not impermissibly pre-solicit any Merrill clients,” the complaint states.
In the response and in the attached declarations, the advisors also claim that they paid Merrill $22.5 million to purchase their book of business from the wirehouse in 2019, with a contract showing that they could solicit clients within that book after the final payment was made in December 2024.
“We paid this incredible sum of money to Merrill Lynch on the promise that we would be able to move our business and solicit those clients under the Protocol for Broker Recruiting after December 2024,” advisors wrote in matching declarations.
Dynasty Financial backed the defendants in its response to the lawsuit, noting that they had followed the Broker Protocol, just like any other breakaway advisor team. The RIA platform and investment bank also alleges that Merrill purposefully redacted certain portions of the contract the advisors had when purchasing the more than $22 million book of business in its lawsuit.
Dynasty also claims that it and the other defendants first learned of the lawsuit from the press and that it didn’t follow through with the basic charge of illegal solicitation.
Schwab also fired back at being a defendant in the case. The custodian said Merrill’s allegations were based on “rank speculation” and that they did not have sufficient support to make the claims against Schwab, “let alone demonstrate a substantial likelihood of success.”
Schwab argued that, as a custodian, it had been working with the group of advisors since February 2024, but it had engaged in no proprietary or “trade secret” information with them.
Negotiations Fail
Merrill had argued in the initial complaint that the team from OpenArc had breached the Broker Protocol by acting in bad faith due to their “pre-resignation conduct.”
The firm stated that, unlike most Merrill advisors, the GCIAS advisors—which it estimated at approximately 90—were assigned existing relationships and did not actively seek new clients themselves. Yet the defendants were “dissatisfied with earning millions of dollars annually” and opted to start a new firm backed by Dynasty Financial Partners, according to the lawsuit.
The defendants, however, allege that Merrill acted in bad faith both during the process and when negotiating the team’s departure.
According to the defendants, they had been seeking investment from Merrill for the group for years, but without achieving results, resulting in approximately $45 million in lost revenue.
“For the past five years, Merrill has not meaningfully invested in the business division wherein defendants worked, resulting in staggering losses of clients that was not sustainable,” the response states. “The division’s technology and platform became so outdated due to Merrill’s failure to invest that it went from industry leader to laggard in past [sic] five years. Not surprisingly, defendants, who were employees-at-will, started looking elsewhere and decided to open their own business as a Plan B.”
When Merrill discovered that the defendants were enacting Plan B by launching OpenArc, negotiations began for them to stay, according to the response. But rather than negotiating in good faith, the defendants allege that Merrill “hoodwinked” them by filing a lawsuit behind their back and sending it to the press before the firm launched.
“[A]fter a full week of waiting, defendants were summoned to a WebEx meeting where Merrill advised that defendants were being placed on immediate administrative leave and were prohibited from contacting fellow employees or clients,” the response states. “Outrageously, Merrill provided this lawsuit to the press and articles were published before defendants were given notice, despite multiple requests for same and only hours after their forced resignation.”
A hearing on the allegations and responses is scheduled for Tuesday.
#RIA #OpenArc #Dynasty #Schwab #Rebuff #Merrill #Lawsuit