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By Chris Opfer
Tullett Prebon PLC recently scored a $9.1 million victory against a competitor that poached one of its brokers, but it still isn’t clear whether the decision will change the way inter-dealers try to attract and retain talent.
“This award will reverberate loudly in this very tight community,” Jack Kiley, an attorney who represented Tullett in the case against Tradition Securities and Derivatives Inc. and broker Suncica Reljic, told Bloomberg BNA. “The message to brokers leaving in the middle of contracts and other firms enticing brokers to breach their contracts is it’s going to cost you in the long run.”
The decision comes as the inter-dealer industry—in which firms act as middlemen to facilitate trades between banks—is seeing shifts to electronic trading that have reduced the head counts at certain firms and made top-performing brokers more valuable. Tradition may be on the hook for nearly $10 million after accounting for legal fees, but it also gets the chance to hold onto the book of business that Reljic brought with her when she jumped from Tullett with some 10 months remaining on her contract.
“The inter-dealer market has gone through tremendous shrinkage, and you can see that by the consolidation that’s taken place among competitors in the post-financial crisis world,” Brad Bailey, a research director at Celent, told Bloomberg BNA.
Tullett is expected to close a $1.6 billion deal before the end of the year to buy ICAP PLC’s voice trading and information business. The move is the latest sign that some inter-dealers are looking to get away from the old days of trading securities over the phone and focus on electronic deals.
Noncompete agreements like the one that Reljic signed with Tullett are common in the industry. They give brokers a strong incentive to stay where they are or risk losing their client lists during the time they must sit on the sidelines. Reljic earlier made sexual harassment claims against Tullett that didn’t succeed.
Reljic left Tullett in February 2010 after alleging that she and a colleague were sexually harassed by their superiors. In a lawsuit filed in federal court in New Jersey, Reljic described the work environment at Tullett as a “boys club” in which superiors regularly engaged in drunken and lurid behavior.
The court granted Tullett’s request to force Reljic to arbitrate her claims. The same Financial Industry Regulatory Authority arbitration panel that sided with Tullett on the poaching claims denied Reljic’s allegations of sexual harassment, discrimination and retaliation.
Laura Petroff and Thomas Lane, attorneys at Winston & Strawn LLP who represented Reljic and Tradition in the arbitration, didn’t respond to Bloomberg BNA’s requests for comment. Calls to Tradition also went unanswered.
Kiley, a partner at Sheppard Mullin Richter & Hampton LLP, said the inter-dealer industry is so small and competition is so fierce, Tradition likely knew or should have known about the noncompete agreement. “They all know that brokers are subject to certain contract terms because they all have the same practices,” he said. Reljic continues to work for Tradition, according to FINRA broker registration records.
The panel found that Reljic violated her contract with Tullett by leaving the company early and disregarding a noncompete provision banning her from working for a competitor for up to six months after the deal expired. Tullett alleged in the arbitration that Reljic took two of her colleagues with her to Tradition after Tullett refused her demands for additional bonus money.
Noncompete agreements are becoming increasingly common in a wide range of industries. “I certainly recommend that clients use these agreements and ask the employee to sign something saying they don’t have a noncompete with another employer,” Marc Bernstein, a partner in Paul Hastings’ New York office, told Bloomberg BNA.
They’re particularly useful in the inter-dealer industry because the agreements may force dealers to sit on the sidelines—in what Celent’s Bailey called “the garden”—for several months, while clients take their business elsewhere.
“I think firms realize that their most important asset is their people and that they need to guard against those people leaving,” Bailey said. “When business is good, you can make up for a lot of things, but in a tough environment, you need the best people.”
Reljic brought in more than $2 million in performance-based bonuses in her last year with Tullett, according to the firm. Even at that rate, Bailey said it might be difficult to justify the bill Tradition just received from the FINRA arbitrators.
Inter-dealers are feeling the squeeze from the Dodd-Frank Act and other new rules of the road, as well as decreasing trade volume activity and competition from electronic trading. That’s trimmed the margins on many of the trades that the firms make.
“No inter-dealer broker wants to pay $9 million right now,” Bailey said. “They’re struggling.”
To contact the reporter on this story: Chris Opfer in Washington at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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