Canadian row over brokerage defections
They're playing musical chairs on Bay Street, and some of the big players don't like it. Wood Gundy Inc., one of Canada's biggest brokerage houses, has launched a C$355 million (US$270 million) lawsuit because some of its top performers jumped ship and went to another brokerage house.
And Wood Gundy also wants its client lists back, whether they are stored on a floppy disk or a sheet of paper.
At issue is a mass defection of top-producing staff from Wood Gundy to a competing brokerage house, Walwyn Inc. On Aug. 28, Walwyn announced the coup. It had lured a crack sales team of four people from Wood Gundy, including Timothy Miller, a salesman who was also a director of the firm. Since then, 14 more salespeople have bolted, along with 16 support staff members.
Wood Gundy decided it couldn't take it anymore and launched its lawsuit in Ontario Supreme Court. The lawsuit seeks C$46 million against Mr. Miller, the former director, and C$43 million each against the three other other men who first crossed over to Walwyn. It also names Walwyn Inc., associated companies, and officers.
The mass defection was an embarrassment for Wood Gundy, which sold 35 percent of itself to First Chicago Corporation over the summer.
Wood Gundy would not comment on the suit, but industry insiders say the agreement with First Chicago did not cover protecting retail sales staff. Usually in agreements of this type, senior management has to stay on for several years.
It all started with financial deregulation in Toronto, the Canadian financial capital's version of London's ``Big Bang.'' It gave the right to firms outside the brokerage business - and outside Canada - to buy a piece of brokerage houses. That pushed up salaries and started a lot of job switching.
The bull market in Canada had attracted more investors. A recent survey by the Toronto Stock Exchange shows that as many as 20 percent of Canadians own equities, in stocks or mutual funds. That is double the number who dabbled a decade ago. Client lists have been growing.
Miller, the former Wood Gundy director, says he doesn't understand the suit. ``I'm obviously very disappointed at what has occurred,'' he said. ``I don't understand the basis of their concern; as far as I'm concerned, we have done nothing wrong.''
Experts in securities law agree there is nothing wrong with switching jobs. But according to a top securities lawyer in Toronto, there could be a problem in taking a large group of brokerage professionals, especially if the sales staff brings customers with it.
The biggest reason for the switch was money. ``Miller was probably getting to keep 50 percent of his commissions at Wood Gundy,'' says a former employee of Walwyn. ``But I'm told that Walwyn sweetened that to 65 percent.''
Strangely, Walwyn itself was the victim of a major raid earlier this year. About half its bond traders defected to the Toronto operations of the Chemical Bank. The reasons were the same: more money in the new job.
Bond traders were in big demand earlier this year, and a raid of nine bond traders at Midland Doherty Inc. caused that firm to sue its employees and the raiding brokerage house. The case is still before the courts.
The raiding can be expected to continue, despite the lawsuits, as the financial industry in Toronto expands and more foreign firms start operations here.