When Wells Fargo
Regardless of how the case unfolds, the bank's move against Steven Satter, who worked at Wells for 14 years before leaving in June to join a new independent advisory firm, could spell changes for how the competitive wealth management world handles employees, including not only advisors with big clients but also in-house attorneys, who may jump ship. Industry experts disagree on the extent of such change, but one well-known observer predicts significant fallout.
The Wall Street bank's brokerage division, Wells Fargo Advisors, filed suit against Satter in Ohio federal court on September 20, alleging that he stole trade secrets in defiance of its employee handbook while still employed as an in-house lawyer for the bank. The complaint accused Satter, a senior attorney, of using proprietary information in a "malicious conspiracy" to steal Wells clients with seven advisors, overseeing over $1.2 billion of assets, who broke away with him to form Cincinnati-based DayMark Wealth Partners in June.
Industry watchers were "stunned" by the lawsuit, said Bill Singer, a securities litigation lawyer and former broker with 40 years of experience in the industry, in an interview. Singer also authors the popular industry blog BrokeANDBroker.
"That's usually playing with fire … You just don't sue a lawyer who's privy to all your dirty laundry," he said.
Satter, who identified as a "founder" and general counsel on DayMark
A spokesperson for Wells Fargo issued the following statement for this story: "Wells Fargo seeks damages for harm caused by a former employee who has used the privileged and confidential information he gained as a company attorney to advise a competing firm in violation of his agreements, ethical obligations, and company policy. As an employee, he provided legal counsel on behalf of Wells Fargo Advisors (WFA) to the same team of advisors he now advises in competing with WFA."
'A rather damning picture'
In its complaint, Wells said that Satter submitted his resignation on March 21, the same day and around the same time that a website domain was registered to DayMark, a new registered investment advisory firm. The company was incorporated as a limited liability company in
Satter, who left Wells on April 15, is also the "
The RIA's method of setting up shop without using Satter's name appears to stand in contrast to Satter's positioning, post-launch, as front and center DayMark's representative for "all legal matters involving the firm," as his employee page on the firm's
To Satter's old employer, it may be a smoking gun.
Satter left Wells on April 15, according to the lawsuit, which alleges that he said in March he was "retiring" but showed up in person at DayMark when the breakaway advisors quit Wells and then opened their new offices that same day, June 6.
On paper, it might appear that Satter could say he had let enough time pass to make a clean break between the two jobs. He could produce retainer documents, Singer said, proving he had "no billables" for legal work at DayMark until a suitable interval had elapsed after he left Wells. But Wells Fargo could make a connect-the-dots argument that the closely timed events were unlikely to happen on their own, and accuse him of working prior to such a retainer's official start date.
"I'm certain that there's another side to the story that Mr. Satter will advance at the appropriate time. But the facts, as alleged, paint a rather damning picture," said Robert Herskovits, another securities lawyer and
Herskovits, who called the case "highly unusual," also said he had not seen anything like it in his experience. "And I closely follow litigation."
'A little hypocritical'
The bigger question is whether Wells Fargo, and the brokerage and wealth management industries, are prepared for what might happen next.
"Once he starts testifying," Singer said of Satter, "who knows what's gonna come out?"
Singer said that in-house lawyers have been in the public eye recently with their testimony in high-profile cases. Cornering Satter might backfire for the bank in a court of public opinion, at a time when it's
The case highlights a longstanding problem with Wall Street: in-house lawyers get caught in a bind when the employees who place trust in them are suddenly at odds with their employer. Up to now, this servant-of-two-masters scenario hasn't been a problem for big firms, since it worked in their favor when company lawyers pushed employees to support the company in litigation testimony, said Singer, who is familiar with many such instances of this. "That goes on all the time."
"That's where it becomes a little hypocritical," he continued. "What one would argue Wells Fargo's complaining about is that the attorney should have been more forceful in either threatening these people not to leave or giving them advice that would have made it more difficult."
Though he thinks it's too early to say what this case could mean for the industry at large, fellow securities litigation attorney Timothy Dennin agrees that the strategy Wells used in this case flies in the face of how Wall Street firms have typically treated their own language in HR handbooks.
"I've been involved in so many FINRA arbitrations," said Dennin, who usually represents
"In every one of those cases, I point to the policies and procedures that the firm requires the FA's to follow, the code of ethics," he said. "And in every one of those arbitrations, the broker-dealer just sidesteps it, like it's really not an issue. They try to downplay it. But here they're using it as the basis for the claim against the former in-house counsel… I found that ironic."
Wells would probably hire a forensic IT investigator to trace Satter's steps in the company computer systems, Singer said. They might indeed discover evidence he was lying, if in fact Satter had been emailing or
A potential one-off, but 'be careful what you wish for'
But even if the bank is right, it could be a Pyrrhic victory. Across the industry, firms with in-house legal teams will likely consider revising their employee handbooks with language that makes clear that an in-house attorney's allegiance would be "first and foremost to [the] employer and not to you, and [they] would urge you to retain independent outside counsel," said Singer.
"That's going to be a dangerous development for the brokerage firms. Because once word gets around the hundreds of thousands of men and women who are associated persons, that's when trouble pops up. The firm is telling us that we really can't trust working with in-house counsel. They're all going to go out and hire outside attorneys." While firms could reimburse legal fees for those outside attorneys, "lawyers are very expensive." And it could have a "chilling effect," Singer said, for employees who may begin hiding important information that impedes the work of in-house counsel.
"The old expression is, be careful what you wish for. So this is going to be very interesting."
Herskovitz downplayed the potential for the case to have such a domino effect, though, and predicted it would probably be a "one-off" for the industry with no greater implications. "I think it adds a lot of sizzle, that he happens to be an attorney. But I don't know that that's ultimately going to be the defining characteristic of the case," he said, adding that it's routine for lawyers to skip jobs between broker dealers and Wells probably had most of its own legal team sourced from competitors.
"I think the issue here is, what was this guy doing while he was receiving a paycheck at Wells Fargo?" he said. "I think they've (Wells Fargo) taken the gloves off in light of a unique fact pattern that they've described in the complaint." He acknowledged, though, that "this is just me reading the tea leaves like the next guy."
To Singer, the firm's behavior in the case is concerning enough that it may deter talent from its legal jobs nonetheless. "How do you think it's going to be received when people start interviewing to work as lawyers for Wells Fargo and they find out that you sued a former attorney?" Singer said. "Well, the hell with them. But what do you mean, the hell with them?" He said attorneys may decide to go work for wirehouse rivals Morgan Stanley or for Merrill Lynch instead, suspecting a deeper rot in the culture of a firm that cannot resolve such issues internally. "Because you would think that they could have made a phone call, worked something out."
Singer said it appeared that Wells Fargo had not thought through their actions in filing the suit, given the weighty consequences that it could usher in. "There's something very personal, in my opinion, that must be going on." The case certainly seems to involve heated emotions, if the complaint is any indication. Following the bank's filing of a FINRA statement of claim on July 13 against the DayMark advisors, attorneys for Wells described an insult-filled exchange between the attorney and an unnamed high-ranking individual at Wells:
"Attorney Satter shared with WFA representatives that he intended to do whatever he could to cause WFA to regret having filed the FINRA Arbitration, and explained that his plan would be to "shove" WFA's Statement of Claim into the posterior of a certain senior WFA executive."
"I've dealt with Steve Satter in the past, and I always found him to be professional, and always found him to zealously advocate for Wells Fargo," Herskovitz said, in contradiction of the portrayal Wells made in the complaint. "For whatever that's worth, that was my experience with him."
DayMark and Satter, reached for this story, declined to comment.
However, when the lawsuit first came out last month, Satter said to
Wells Fargo's lawyer on the case, Michael A. Roberts, also declined to comment.
"Dynasty has no legal dispute with Wells Fargo," a spokesperson for Dynasty said in an emailed statement, and declined to further comment. DayMark is in the independent advisor network of Dynasty Financial Partners.
