The SEC and Whistleblowers: The Latest

This Spring, the SEC announced that it had made a settlement in the cease and desist proceedings against the Houston-based tech and engineering firm, KBR Inc. The case was based on what the SEC regarded as restrictive language in employee confidentiality agreements. In the settlement, KBR has agreed to compliance measures and to make certain penalty payments.

KBR and Confidentiality Agreements

KBR conducted employee interviews to investigate whether employees were engaged in unethical or illegal conduct. As part of those interviews, KBR mandated that employees sign a confidentiality agreement agreeing not to discuss the details of the interview without the consent of KBR. The confidentiality agreement also noted that any violation would result in termination.

Dodd-Frank Act Violations

In its cease and desist order, the SEC decided the terms of KBR’s confidentiality agreement violated Section 21F of the Securities Exchange Act, which discusses whistleblower protection and was implemented in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Specifically, SEC Rule 21F-17(a) states:

No person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement with respect to such communications.

Problematic Language

This first-of-its-kind enforcement is particularly interesting because there was no claim that KBR ever made any attempt to prevent communications between an employee and the SEC.

Furthermore, KBR never threatened and/or took any action to enforce the confidentiality agreement. KBR’s sole wrongdoing was the misuse of restrictive the language in the confidentiality agreement. The clause in question stated the following:

I understand that in order to protect the integrity of this review, I am prohibited from discussing any particulars regarding this interview and the subject matter discussed during the interview, without the prior authorization of the Law Department. I understand that the unauthorized disclosure of information may be grounds for disciplinary action up to and including termination of employment.

The problem with “Pre-Notification Requirements.”

In a statement about the settlement, the SEC’s head of enforcement Mr. Andrew Ceresney commented: “By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us.”

He also stated: “SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other types of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision.”

In a separate statement, SEC whistleblower chief Sean McKessy stated, “Other employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.”

What This Means for Whistleblowers

The scale and breadth of the SEC’s enforcement in cases like this is clear Corporations must evaluate their contractual provisions involving their employees, the codes of conduct, all internal reporting, compliance policies and termination agreements to make sure that no provision neither expressly nor impliedly run afoul of Rule 21F-17.

In taking this proceeding against KBR, as well as in its public promises both before and after the announcement of the settlement, the SEC has made its mission clear: Confidentiality contracts that could be viewed as an effort to impede whistleblowers are no longer viable.

The U.S. Supreme Court Extends Whistleblower Protections for Advisors and Other Professionals

This past Tuesday, in the case of Lawson v. FMR, LLC the United States Supreme Court rendered a decision where it extended whistleblower protections to individuals and businesses that conduct business with public companies. This effectively extended the whistleblower protections to financials advisors working with third party firms.

The Supreme Court decision stems from a claim made by two employees of FMR LLC, a subsidiary of Fidelity Investments. After highlighting what they believed to be improper company practices that could harm shareholders (particularly how certain mutual funds were being managed by Fidelity Brokerage Services, LLC—another subsidiary of Fidelity Investments), the two advisors claimed they were retaliated against. In a Reuters article released last week, the Executive Director of the National Whistleblower Center Mr. Stephen Kohn indicated that the Supreme Court Ruling is of particular significance for the financial industry. Specifically, Mr. Kohn stated that he “had a number of cases where the company tries to manipulate the employee relationship to have the employee lose whistleblower protections.”

At Vernon Litigation Group, we stand ready to assist financial advisors and other professionals in guiding them through the whistleblower process in order to preserve all rights available under state and federal law. If you believe you have a possible whistleblower claim against your former or current employer, contact us here or give us a call at 877-649-5394. Our attorneys can help you quickly understand the procedures you need to follow in order to ensure that you maintain your rights in case you need to bring a claim.

The Promissory Note you Signed May Not be Owned by your Current or Former Employer

As is customary in the financial industry, many financial advisors receive a transition and/or retention bonus in the form of a promissory note.  The “bonus” often contains a number of restrictive provisions, generally tying the advisor to the firm for a number of years as well as forcing him/her to return the “bonus” if he/she were to transition to another firm (before the restrictive period ends).  But as we have recently discovered, some financial firms do not actually own the “promissory note” signed by the advisor.  As a result, advisors should be vigilant as to which entity is attempting to enforce the terms of the promissory note.

When firms merge (and at times even if they don’t), we are often finding that a non-FINRA member owns and holds all rights and interest in the financial advisor’s note.  This non-FINRA member is usually a subsidiary of the Broker Dealer or a related entity to the Holding Company or the Broker Dealer.   Consequently, even if the actual note allows the non-FINRA member (as an assignee) to possibly force the advisor into FINRA arbitration (as opposed to court) to pursue collection on the note, it does not allow the non-FINRA member to invoke the infamous “expedited proceeding” provided for in FINRA Rules (and may call into question the arbitrability of the dispute as well).

The expedited proceeding for promissory note cases was instituted on September 14, 2009, and applies to all arbitration cases filed on or after that date.  This allows broker dealers to potentially obtain a FINRA arbitration award against the advisor in as little as a month or two.  Nevertheless, the expedited proceeding for promissory note cases can only be asserted if a number of requirements are met.  The most important requirement is that the Claimant (i.e., the institution attempting to collect the money allegedly owed on the note) has to be a FINRA member.  Specifically, FINRA Rule 13806 provides the following:

(a) Applicability of Rule
This rule applies to arbitrations solely involving a member’s claim that an associated person failed to pay money owed on a promissory note. To proceed under this rule, a claim may not include any additional allegations. Except as otherwise provided in this rule, all provisions of the Code apply to such arbitrations.

In other words, if the promissory note is owned or was assigned to a related entity or subsidiary of the broker dealer and it is not a FINRA member, expedited procedures cannot be utilized by the holder of the note.  Regretfully, in an effort to invoke the rule to obtain a judgment against the advisor as quickly as possible, many broker dealers are sending out demand/collection letters to financial advisors demanding checks be written to the broker dealer, despite the fact that the broker dealer is well aware they have no right to the notes or payment on the notes.

To defend themselves from the standing challenge, financial firms are attempting to cure the problem by adding rather than substituting the proper party.   In doing so, they are trying to both protect the right to pursue claims in FINRA arbitration on expedited basis (under the FINRA Arbitration promissory note rules) and also attempting to have the funds from any favorable arbitration award made payable to the broker dealer, despite its complete lack of standing.   And although broker dealers could presumably cure this defect by simply assigning all the Financial Advisors notes to the broker dealer, it appears that the broader issues in play (e.g., net capital requirements) far outweigh the impropriety of falsely pursuing these claims through the broker dealer without standing to do so.

We are continuing to investigate the tax, net capital, securitization, or balance sheet/income statement (i.e., management of income) reason(s) for broker dealers to offload these notes to a sister holding company in the first place.  As recently publicized in a New York Times article noting Vernon Litigation Group’s successful challenge of FINRA member Morgan Stanley’s standing to pursue collection on promissory notes, some brokerage firms have set up entities exclusively for the purpose of holding financial advisor notes in order to obtain bigger picture benefits (such as minimizing their net capital requirements).

Based on our research and analysis, we encourage advisors to promptly retain competent counsel to determine whether to challenge the right to collect on the note in arbitration or the applicability of the expedited proceedings rule (or both), is in the advisor’s best interest.  In some cases, we believe financial advisors should question the broker dealer’s authority to pursue collection on the note (i.e., standing) immediately upon receipt of a demand/collection letter.

Although dismissal in an arbitration proceeding is rare (due to the very limited grounds for dismissal provided in FINRA Rules), an early and ongoing objection before and during the FINRA arbitration proceeding should result in the FINRA arbitrators refusing to allow the claim to proceed under the expedited arbitration rules.  Additionally, in the event and award is rendered in favor of a broker dealer with no standing, then the award may be subject to a successful vacatur petition in court.  This is particularly true in cases where it is made clear that the broker dealer had no standing to pursue claims against the financial advisor.

If you have switched firms and have received a demand letter from your previous employer, you should speak to an attorney and explore your options in defending collection claims initiated by the broker dealer or other financial institution.  Vernon Litigation Group’s financial advisor employment team of attorneys continues to represent both investors and financial advisors nationwide in disputes against broker dealers and investment firms.  With respect to advisors, this includes transition disputes, promissory note disputes, wrongful termination, Form U-5, CRD, and other defamatory disclosures, discrimination, and other employment related abuses by the financial institutions.

What Advisors Should Know About Collection Letters Sent By Brokerage Firms

In recent years, brokerage firms have ramped up their efforts to go after brokers and financial advisors who have received incentives in the form of “forgivable loans” and have either transitioned to another firm or have been terminated. Broker dealers have so intensified their collection efforts, that some (especially wirehouses) have even created special departments just to pursue collection on “promissory notes.”

Based on our past and current experience representing financial advisors in employment related issues (including termination disputes), collection letters (as well as cease and desist letters) are now often sent to advisors within weeks (sometimes even days) of termination or separation seeking full repayment of the money allegedly “owed” by advisors.  These collection letters should be taken seriously for multiple reasons.

If you are an advisor who has received such a collection letter, you should carefully review the letter and be very mindful of its contents, including 1) the party attempting to pursue collection on the promissory note; 2) the amount sought; 3) the date the letter was sent to you; 4) the deadline set out in the letter to submit payment; and 5) the specific language utilized to pursue collection.  Below is a broad analysis of what advisors should keep in mind when the contents of a collection letter from their previous employer.

Although collection letters are usually sent by a collection law firm retained by the advisor’s previous employer, often times collection letters are sent by the firms themselves. Regardless, it is important for the advisor to verify who is attempting to pursue collection on the note and whether the party attempting to pursue collection has the legal right to do so.  This is because there is no guarantee that the former employer is the rightful owner or assignee of the contract or “promissory note.”  The advisor should make sure that the financial firm that is attempting to pursue collection is the same party (or a legitimate successor in interest) listed in the “promissory note” contract.

Similarly, the advisor should verify whether the amount being sought in the letter is accurate; and whether the letter complies with FINRA Rules, federal law, and state law regarding collection of a debt.

Finally, one of the most important aspects of the collection letter is that it gives the advisor time to map out a strategy.  This is because collection letters serve as a warning that advisors may get sued under FINRA arbitration (in rare cases AAA) in the near future.  This, in turn, gives the advisor the necessary timeframe to seek competent representation to defend the brokerage claims as well as investigate possible whistleblower and affirmative claims against the brokerage firm.

Despite the foregoing commentary not to ignore collection letters from the brokerage firm, advisors should be careful in responding to collection letters.  This is because anything that is written as a response could potentially harm the advisor’s future affirmative defenses, whistleblower claims, or counterclaims against the brokerage firm.  Emotional reactions are particularly harmful.  As a result, advisors should seek guidance on whether responding to a collection letter (other than paying the amount sought in the letter) is in their best interest and, if so, what the response should be.

In addition to the ideas discussed above, advisors need to be aware that FINRA has instituted expedited proceedings for promissory note cases.  This means that when a firm files a FINRA arbitration claim for collection on a note, the arbitration hearing could potentially take place in just a few months.

Even though some employment relationships are at-will relationships, there may be other issues that may work in the advisor’s favor in a dispute against the firm, including potential affirmative claims against the brokerage firm (e.g., deferred compensation, wrongful termination, discrimination, unpaid commissions, and several other factors).  Finally, issues like whether a firm is part of the Broker Dealer Protocol, may trigger additional concerns if the advisor’s contract contains restrictive covenants and any of the guidelines of the protocol were not properly followed.

Vernon Litigation Group’s financial advisor employment team of attorneys continues to represent financial advisors nationwide in disputes against their current or previous employer in cases of transition disputes, promissory note disputes, wrongful termination, U5, CRD, and other defamatory disclosures, discrimination, and other employment related abuses by the financial institutions.

Former Morgan Stanley Advisor Sues the Brokerage Firm for Attorney’s Fees After Establishing it had No Right to Pursue Claim on Forgivable Loan

Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) is now being sued in court for attorney’s fees incurred by one of its former financial advisors who, in a FINRA arbitration hearing, succeeded in proving that FINRA member Morgan Stanley had no standing (i.e., no legal right) to sue him in FINRA arbitration for repayment of a bonus.

In order to convince high producing financial advisor James Eastman to join and then stay with Smith Barney when Smith Barney merged with Morgan Stanley, Mr. Eastman received a significant “bonus” in the form of what the industry refers to as a forgivable loan.  When Mr. Eastman was subsequently terminated, Morgan Stanley immediately commenced collection proceedings against its former employee through a collection letter.  The letter sought collection pursuant to two “promissory notes” and demanded that Mr. Eastman remit the alleged balance owed payable to Morgan Stanley Smith Barney LLC.  The letter falsely alleged that the original creditor of the debt was Morgan Stanley.   In response to Morgan Stanley’s letter, Mr. Eastman questioned Morgan Stanley’s ownership of the notes and requested documents supporting Morgan Stanley’s right to collect the alleged debt.   No documents were produced in response.

Shortly thereafter, Morgan Stanley filed a FINRA arbitration claim against Mr. Eastman to collect on the two promissory notes.  In the arbitration claim, Morgan Stanley once again falsely alleged the following: “Morgan Stanley [i.e., Morgan Stanley Smith Barney, LLC] is prosecuting this claim against Eastman as the assignee of the Promissory Notes signed by Eastman.”  Mr. Eastman then disputed this claim that FINRA member Morgan Stanley was the assignee of the notes.  As a result, as part of his answer and affirmative defenses to the claims by Morgan Stanley, Mr. Eastman alleged, among other issues, Morgan Stanley’s lack of standing.

After multiple pleadings, including a Motion to Dismiss Morgan Stanley’s claim in advance of the final hearing, Morgan Stanley amended its claim to add a new party that apparently owned the notes.  Nevertheless, Morgan Stanley continued to claim that it had standing to pursue collection of the notes as a “third-party beneficiary” of Mr. Eastman’s promissory notes.

Through discovery and testimony at the final arbitration hearing, including the testimony of Morgan Stanley’s Chief Financial Officer, Mr. Eastman and his attorneys established that Morgan Stanley had no “standing” to pursue Mr. Eastman for repayment of the incentive bonuses.  As a result, after a five day hearing in Tampa, Florida, the arbitrators granted Mr. Eastman’s Motion to Dismiss Morgan Stanley’s claims against Mr. Eastman for repayment of the bonus (i.e., the promissory notes).  In its award, the panel went on to specifically determine that Mr. Eastman was the prevailing party in his dispute with Morgan Stanley and deferred the issue of attorney’s fees to court, in accordance with Florida law.

In addition to the foregoing, the FINRA arbitration panel found that the actual holder of the notes (a Morgan Stanley entity that is not a FINRA member) was only entitled to bonus repayment of less than 50 percent of the amount it sought from Mr. Eastman at the final arbitration hearing.

Mr. Eastman, a top producer at Morgan Stanley, pursued the case because of his concerns regarding how much of the industry has become so focused on things that are not consistent with investor’s needs.  Mr. Eastman is now seeking to recover his attorney’s fees in court from Morgan Stanley for pursuing collection claims against him without any right to do so.

With respect to the issue of standing to pursue the claim, Mr. Eastman’s attorney Chris Vernonstated that he believes “this establishes a basis for FINRA to investigate FINRA member Morgan Stanley for pursuing claims that it has no right to pursue.  We believe it is important for FINRA to self-initiate an investigation because it is difficult for a single arbitration panel to initiate a referral on this type of technical issue.”   Mr. Vernon’s colleague, Victor Bayata added:  “It is the pattern and practice of Morgan Stanley doing this repeatedly that is troubling and should be stopped by FINRA.”  Beyond the jurisdiction of FINRA, a New York Times article released yesterdayexplores how Mr. Eastman’s case also exposed one of Morgan Stanley’s motives behind its actions to have a different entity hold the promissory notes; that is to reduce its Net Capital requirements.

Mr. Eastman, for his part, is glad he took on Wall Street and helped to reveal just one of Wall Street’s troubling behaviors that continues beyond the 2008 financial crisis.  “We fought for morals and ethics over self-serving policies of Wall Street,” said Mr. Eastman.  “I hope other advisors and investors continue to chip away at these Wall Street firms until they change their ways or exit the business.”

Vernon Litigation Group represents financial advisors nationwide in disputes against the financial industry.  With respect to their financial advisor representation, Vernon Litigation Group represents advisors in disputes against their current or previous employer in cases of whistleblower claims, promissory note disputes, wrongful termination, U5 employer defamation (as well as other defamation), and other employment related abuses by the financial institutions.  Vernon Litigation Group’s financial advisor site “Financial Advisor Attorney” is tailored to financial advisors as a resource when dealing with employment related issues, including the possibility of transitioning to another Firm as well as how to deal with promissory note concerns.

What Financial Advisors Should Know About “Protocol”

The Protocol for broker recruiting can be an effective tool for financial advisors to avoid the threat of litigation when switching firms. Nevertheless, it is important to understand that the “Protocol” is not a complete shield from potential litigation against the advisor. Before switching firms, advisors should be fully aware of what the Protocol is, how to follow Protocol, and how to minimize the risk of potential litigation.

The Protocol for broker recruiting was initially created by a conjunctive effort among Smith Barney (now Morgan Stanley), Merrill Lynch, and UBS. Adopted in August of 2004, the broker Protocol for broker recruiting began as a common understanding among signatories not to sue each other (or their advisors) as long as certain procedures and limitations were followed. Eventually, hundreds of other firms decided to also join the Protocol in an attempt to further reduce the expense in litigating particular issues between firms. Currently, the number of firms that are part of the Protocol exceeds 500.

Although the Protocol for broker recruiting is a fairly simple document, most advisors are not aware of its guidelines and limitations. Some of the most important ones are described below.

Protocol Affiliation
The most common mistake made by advisors switching firms is to assume that the firm they are leaving, as well as the firm they are about to join are both Protocol firms. Since joining Protocol is entirely at the discretion of the firms, an automatic Protocol assumption can be a costly mistake. If either the firm the advisor is transitioning from, or the firm the advisor is transitioning to is not a signatory of the Protocol for broker recruiting, the advisor may not be allowed to take any documents or information; not even their clients’ names. In fact, if the advisor takes any type of document or information (or any of his or her clients to his or her new firm), the advisor could be sued by their previous employer who may also seek an injunction to prevent the advisor from contacting the advisor’s clients.

On the other hand, there are some courts around the country that have determined a Protocol member firm may not be entitled to an injunction simply because the advisor transitioned to a non-Protocol member firm (because the Protocol member “tacitly accepts that the taking of client lists by departing brokers does not cause irreparable harm required for the Court to grant an injunction”).

Nevertheless, courts in most states have ruled that the “Protocol, by its own terms…applies only to those firms who sign it.” As a result, if one of the parties is not a Protocol firm, the advisor should be careful not to take any documents or information when leaving the firm.

If the financial advisor is able to confirm that the Protocol for broker recruiting applies, the next step is to determine exactly what the advisor is entitled to take as part of the transition. Set out below are some issues to consider when both the old firm and the new firm are part of the Protocol.

The Documents and Information the Advisor is Entitled to Take
A financial advisor needs to know exactly what documents and information he or she is entitled to take when transitioning between Protocol member firms. Taking too many documents or information can immediately waive the protections granted by the Protocol and the advisor may be at risk of litigation. As of the date of this article, the following are the documents and information that an advisor can take when switching between Protocol member firms:

  • Client names
  • Client addresses
  • Client phone numbers
  • Client email addresses
  • Account title of the clients that they serviced while at the firm


In most circumstances, advisors are prohibited from taking other documents or information. If the advisor decides to take more information that allowed under Protocol, the advisor may not only be exposed to potential litigation, but also to penalties and fines imposed by the Financial Industry Regulatory Authority (FINRA).

For instance, on March 23, 2013, FINRA’s Department of enforcement charged a financial advisor with violations to FINRA Rule 2110 due to the fact that—after he left his previous employer—the advisor took a flash drive containing clients names, addresses, account numbers, and social security numbers (among other sensitive private information). Although FINRA assessed a $10,000 fine and a 10 day suspension, the advisor could have been disciplined with a much higher fine and even a permanent ban from the industry.

The Procedures During and Following Transition
The Protocol for broker recruiting also requires advisors to follow specific procedures during and after the transition. These procedures should be strictly followed by advisors in order to prevent the advisor’s previous employer from alleging that Protocol has been waived.

First, the financial advisor’s resignation should be in writing and delivered to the local branch manager. Resignation letters should be clear and concise; lengthy resignation letters increase the chances for potential liability. Click here to read some helpful suggestions when drafting a resignation letter.

Next, the advisor’s resignation letter should include a copy of the client Information that the advisor is taking. The advisor should also include the account numbers for the clients serviced by him or her. Nevertheless, the account numbers should not be taken by the advisor when leaving the firm. In the event that the firm does not agree with the advisor’s list of clients, the advisor will nonetheless be deemed in compliance with the Protocol as long as good faith was exercised in the assemply of the list (and substantially complied with the other requirements outlined above).

Additionally, the financial advisor cannot contact any of their clients until he or she is fully employed by the new firm (if the advisor wants to remain in compliance with Protocol). Once at the new firm, only the advisor has the power to contact his or her own clients. No other advisor or employee at the new firm is allowed to contact the clients.

Although the above topics do not encompass an exhaustive list of all the issues advisors should be aware of when dealing with Protocol related transitions, the list provides a starting point for advisors to consider the safe harbors that the Protocol offers. We encourage financial advisors to look at other resources found throughout this site and to seek the guidance of counsel in advance to review and advise them on the contractual obligations as well as Protocol adherence for a successful transition.

The Vernon Litigation Group’s financial advisor employment team of attorneys continues to represent financial advisors nationwide in disputes against their current or previous employer in cases of transition disputes, promissory note disputes, wrongful termination, U5, CRD, and other defamatory disclosures, discrimination, and other employment related abuses by the financial institutions.

The Protocol for Broker Recruiting

This is an actual copy of the Broker Protocol for Broker Recruiting
currently in effect between Protocol member firms.
The principal goal of the following protocol is to further the clients’ interests of privacy and freedom of choice in connection with the movement of their Registered Representatives between firms. If departing Registered Representatives and their new firm follow this protocol, neither the departing Registered Representative nor the firm that he or she joins would have any monetary or other liability to the firm that the Registered Representative left by reason of the Registered Representative taking the information identified below or the solicitation of the clients serviced by the Registered Representative at his or her prior firm, provided, however, that this protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for “raiding.” The signatories to this protocol agree to implement and adhere to it in good faith.When Registered Representative move from one firm to another and both firms are signatories to this protocol, they may take only the following account information: client name, address, phone number, email address, and account title of the clients that they serviced while at the firm (“the Client Information”) and are prohibited from taking any other documents or information. Resignations will be in writing delivered to local branch management and shall include a copy of the Client Information that the Registered Representative is taking with him or her. The Registered Representative list delivered to the branch also shall include the account numbers for the clients serviced by the Registered Representative. The local branch management will send the information to the firm’s back office. In the event that the firm does not agree with the Registered Representative’s list of clients, the Registered Representative will nonetheless be deemed in compliance with this protocol so long as the Registered Representative exercised good faith in assembling the list and substantially complied with the requirement that only Client Information related to clients he or she serviced while at the firm be taken with him or her.To ensure compliance with GLB and SEC Regulation SP, the new firm will limit the use of the Client Information to the solicitation by the Registered Representative of his or her former clients and will not permit the use of the Client Information by any other Registered Representative or for any other purpose. If a former client indicates to the new firm that he/she would like the prior firm to provide account number(s) and/or account information to the new firm, the former client will be asked to sign a standardized form authorizing the release of the account number(s) and/or account information to the new firm before any such account number(s) or account information are provided.

The prior firm will forward to the new firm the client’s account number(s) and/or most recent account statement(s) or information concerning the account’s current positions within one business day, if possible, but, in any event, within two business days, of its receipt of the signed authorization. This information will be transmitted electronically or by fax, and the requests will be processed by the central back office rather than the branch where the Registered Representative was employed. A client who wants to transfer his/her account need only sign an ACAT form.

Registered Representatives that comply with this protocol would be free to solicit customers that they serviced while at their former firms, but only after they have joined their new firms. A firm would continue to be free to enforce whatever contractual, statutory or common law restrictions exist on the solicitation of customers to move their accounts by a departing Registered Representative before he or she has left the firm.

The Registered Representative’s former firm is required to preserve the documents associated with each account as required by SEC regulations or firm record retention requirements.

It shall not be a violation of this protocol for an Registered Representative, prior to his or her resignation, to provide another firm with information related to the Registered Representative’s business, other than account statements, so long as that information does not reveal client identity.

Accounts subject to a services agreement for stock benefits management services between the firm and the company sponsoring the stock benefit plan that the account holder participates in (such as with stock option programs) would still be subject to (a) the provisions of that agreement as well as to (b) the provisions of any account servicing agreement between the Registered Representative and the firm. Also, accounts subject to a participation agreement in connection with prospecting IRA rollover business would still be subject to the provisions of that agreement.

If a Registered Representative is a member of a team or partnership, and where the entire team/partnership does not move together to another firm, the terms of the team/partnership agreement will govern for which clients the departing team members or partners may take Client Information and which clients the departing team members or partners can solicit. In no event, however, shall a team/partnership agreement be construed or enforced to preclude a Registered Representative from taking the Client Information for those clients whom he or she introduced to the team or partnership or from soliciting such clients

In the absence of a team or partnership written agreement on this point, the following terms shall govern where the entire team is not moving: (1) If the departing team member or partner has been a member of the team or partnership in a producing capacity for four years or more, the departing team member or partner may take the Client Information for all clients serviced by the team or partnership and may solicit those clients to move their accounts to the new firm without fear of litigation from the Registered Representative’s former firm with respect to such information and solicitations; (2) If the departing team member or partner has been a member of the team or partnership in a producing capacity for less than four years, the departing team member or partner will be free from litigation from the Registered Representative’s former firm with respect to client solicitations and the Client Information only for those clients that he or she introduced to the team or partnership.

If accounts serviced by the departing Registered Representative were transferred to the departing Registered Representative pursuant to a retirement program that pays a retiring Registered Representative trailing commissions on the accounts in return for certain assistance provided by the retiring Registered Representative prior to his or her retirement in transitioning the accounts to the departing Registered Representative, the departing Registered Representative’s ability to take Client Information related to those accounts and the departing Registered Representative’s right to solicit those accounts shall be governed by the terms of the contract between the retiring Registered Representative, the departing Registered Representative, and the firm with which both were affiliated.

A signatory to this protocol may withdraw from the protocol at any time and shall endeavor to provide 10 days’ prior written notice of its withdrawal to all other signatories hereto. A signatory who has withdrawn from the protocol shall cease to be bound by the protocol and the protocol shall be of no further force or effect with respect to the signatory. The protocol will remain in full force and effect with respect to those signatories who have not withdrawn.