Bear Stearns suing former official
Brokerage says head of Hub office poached customers, colleagues
Beleaguered brokerage Bear Stearns Cos. has sued the former top executive at its Boston office who jumped ship to a rival last week, trying to block him from recruiting colleagues and clients from his old firm.
The lawsuit filed in US District Court in Boston claims former executive director Douglas A. Sharon and others spent the weekend before they left Bear Stearns in the office copying thousands of client statements and solicited those customers within days on behalf of Sharon's new firm, Morgan Stanley DW Inc. It purports to track the actions of Sharon and others in detail through computer records and security video to make the case.
The suit also alleges that Sharon, who Bear Stearns said had access to detailed business information about all the company's Boston brokers, began to aggressively recruit the best producers on behalf of Morgan Stanley at the same time.
Bear Stearns was in the midst of a grave financial crisis on the weekend of March 15-16, when Sharon was allegedly in his office preparing to leave the company. By the evening of Sunday, March 16, the company disclosed it would be sold to JPMorgan Chase & Co. at the fire sale price of $2 per share with unprecedented financial guarantees offered by the Federal Reserve. The price of the sale has since been reset at $10 per share.
The financial crisis at Bear Stearns, which had been building toward a peak for a week before the sale announcement, prompted other large brokerage firms to begin aggressively recruiting many of the firm's best executives.
Some Bear Stearns brokers were being wooed with signing bonus offers as large as twice the annual revenue they produced, according to Bloomberg News. By that measure, Bear Stearns alleged in its suit, Morgan Stanley may have offered Sharon $10 million to switch firms.
Morgan Stanley was a very active recruiter of Bear Stearns executives. Last week, the firm said it had hired 12 brokers with combined revenue of $26 million. Sharon was a particular catch, along with two other brokers from the Bear Stearns Boston office, Alexander Treves and Carey Bosch.
JPMorgan Chase had responded to the recruitment challenge by offering Bear Stearns brokers large bonuses if they stayed on the job. Lawsuits are another kind of strategy to stem the tide. Bear Stearns reportedly filed other lawsuits in New York this week, trying to prevent departing brokers from talking to their former clients.
It's unclear how aggressively Bear Stearns will use legal strategies to keep its former brokers from pitching their former clients. A company spokesman did not return a call yesterday.
The Boston suit claims Sharon violated terms of his employment contract, which it said requires 90 days notice before he could switch firms. Sharon, reached at Morgan Stanley yesterday, referred questions to his lawyer, Joshua Pemstein of Foley Hoag LLP. Pemstein did not return phone calls yesterday.
Bear Stearns said a review of computer records for Sharon and two sales assistants assigned to him, Frederic Debaets and Jane Hardman, showed they retrieved and printed an unusually high number of records during the week of March 10-17. It also said surveillance tapes showed Sharon and other brokers in the office on the weekend the company was striking a deal to be sold. Between Friday and Sunday nights, the Boston office printed "so many thousands of client account statements that the office exhausted its entire storehouse of paper," according to the lawsuit.
Bear Stearns said surveillance tapes also show Sharon leaving the office with a sales assistant carrying a large box, which it said contained company documents.
Sharon resigned on Monday and told Bear Stearns he was going to work for Morgan Stanley. The lawsuit said Debaets and Hardman also left the firm that day. Sharon also sent a mass-mailing to nearly all his clients asking them to transfer their accounts to Morgan Stanley and soon began soliciting their business by phone, according to the suit.
Steven Syre can be reached at syre@globe.com.
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