Goldman Sachs sues two ex-officials over client poaching

Bloomberg

Goldman Sachs Group Inc. sued two former vice presidents in the bank’s private wealth management unit in Chicago, claiming they poached clients for their own new investment advisory business.
The two men, Jeffrey Friedstein and Joseph Page, gave notice on Friday they were quitting, Goldman Sachs said in a complaint filed Monday in New York state court. The bank then learned they had for months pursued a plan to set up their own company, Grey Street Capital LLC, and had persuaded two Goldman Sachs clients to switch their business, Goldman Sachs said.
The lawsuit is part of a broader war in which ever larger groups of advisers are leaving Wall Street firms, often taking hundreds of clients and billions of dollars in assets under management with them. Increasingly, they’re opting to set up independent firms, whose market share has roughly doubled over the past decade and is approaching 20 percent of assets under management.
In some cases, the advisers’ paths are smoothed by industry pacts. They allow them to leave member firms with basic client information, without running afoul of employment agreements. In either case, the firms losing business often seek to block them by claiming contractual violations and seeking restraining orders in court.
Friedstein and Page tried to get two other Goldman Sachs employees to follow them to Grey Street Capital, in violation of their employment agreements, according to the complaint. Friedstein joined Goldman Sachs in 1997, Page in 2000.
Goldman Sachs is seeking an order barring Friedstein and Page from violating confidentiality and non-solicitation provisions in their agreements while it pursues claims against them in arbitration through the Financial Industry Regulatory Authority. Friedstein declined to comment on the lawsuit. Page didn’t immediately return voice-mail and email messages seeking comment.
In its complaint, Goldman Sachs said the men led a seven-person team in Chicago serving 50 wealthy clients.
While still employed at the firm, Friedstein and Page set up a website for Grey Street Capital and rented office space. An intermediary registered the new firm with the Securities and Exchange Commission, Goldman Sachs said.
Goldman Sachs claimed the employment agreements “broadly prohibit” them from soliciting firm clients and employees for 90 days after leaving. Contract disputes are to be settled in arbitration before FINRA, but a court order is required to temporarily ban the former employees from recruiting their former clients or colleagues, Goldman Sachs said.