UBS Tech not Alone: B. Riley Accuses Former Senior Banker of Trade Secrets Theft for his new employer, Texas Capital Bank
(Bloomberg) -- B. Riley Financial Inc. accused a former top investment banker of scheming to steal clients and staff for his new employer, Texas Capital Bank.
In a lawsuit filed in Dallas last week, B. Riley claimed David Merriman unexpectedly resigned from his position as a senior managing director just before Thanksgiving but had been plotting with Texas Capital even before then.
“Merriman’s departure was part of Texas Capital Securities’ and his long-conducted, continuing scheme to misappropriate B. Riley’s trade secrets and confidential materials,” B. Riley said in its lawsuit.
Merriman couldn’t immediately be reached for comment, but he filed his own lawsuit in Los Angeles Thursday in which he denied the allegations.
“Merriman has honored his lawful obligations to B. Riley and he has not used or disclosed any of B. Riley’s confidential information at his new position,” his lawyers said in the suit, which seeks a declaratory judgment that Merriman is free to compete against B. Riley.
A spokesperson for Texas Capital said in a statement that the bank “will continue to engage in lawful recruiting activities of high integrity.”
Trade secrets suits have become a routine weapon in Wall Street’s war for talent, but this one comes as B. Riley is wrestling with the fallout from the November bankruptcy filing of Franchise Group Inc. B. Riley arranged a $2.8 billion buyout for FRG last year and held a 31% stake in the company. A bankruptcy judge has said FRG’s equity appears to be worthless.
The bankruptcy capped a yearlong drama surrounding a federal criminal investigation of former FRG Chief Executive Officer Brian Kahn and his alleged role in the collapse of hedge fund Prophecy Asset Management. Kahn, who stepped down as CEO in January, has categorically denied wrongdoing or any knowledge of misdeeds at Prophecy. A co-founder of the fund pleaded guilty to fraud last year.
The matter has spurred scores of departures and pummeled B. Riley’s stock over the past year. On Thursday afternoon, the firm’s shares were trading at just over $5, compared to more than $38 in April.
‘$0 in Deals’
In his suit, Merriman cast himself as part of a wave of departures from a “sinking ship.” He said he left B. Riley because business development had become virtually impossible and that he “closed close to $0 in deals” in the past year.
According to B. Riley’s suit, prior to his departure, Merriman and Texas Capital crafted a list of B. Riley investment bankers they planned to poach. Merriman allegedly used his proprietary knowledge of B. Riley’s operations to target the people he knew generated the most revenue.
B. Riley also claims Merriman forwarded confidential data about current and prospective business opportunities at the firm to his and his wife’s personal email addresses. He allegedly began BCCing his personal email on conversations he had with one B. Riley client more than a month before his departure.
“None of this is imagined or speculative,” the firm said in its lawsuit. “No sooner than his second day at Texas Capital Securities, Merriman hurriedly, directly, and brazenly began soliciting and attempting to induce a B. Riley investment banking client to divert its valuable business away from B. Riley and to Texas Capital Securities.”
B. Riley is seeking a court order barring Merriman and Texas Capital from continuing to use confidential information from B. Riley and demanding they return all records to the firm.
The case is B. Riley Securities v. David Jon Merriman, DC-24-21565, Texas District Court, Dallas County (160th District).
Instances where investment bankers moved to rival firms and were accused of sharing confidential information include:
Citigroup vs. Former Employees Joining Bank of Montreal (2024): Citigroup filed a lawsuit against former private bankers John Mitchell and Benjamin Carr, alleging they took confidential client information to their new employer, Bank of Montreal (BMO). The court issued a temporary restraining order against Mitchell, preventing him from using Citi's confidential information.
Reuters
BTIG vs. StoneX Group (2023): BTIG filed a lawsuit against StoneX Group, alleging that StoneX recruited several key BTIG employees to gain access to proprietary software code and business strategies. BTIG claims this misappropriation led to over $1 billion in unjust enrichment for StoneX.
IP Watchdog
First Citizens Bank vs. HSBC (2023): First Citizens Bank, which acquired Silicon Valley Bank (SVB), filed a $1 billion lawsuit against HSBC. The suit alleges that HSBC hired former SVB employees and misappropriated trade secrets to build a competing business in the technology and life sciences sectors.
Wit Legal
U.S. Bank vs. Michael Cole (2017): U.S. Bank sued its former executive, Michael Cole, accusing him of taking confidential information to his new firm, Cresset Family Office. The lawsuit alleges that Cole gathered proprietary data before his departure to benefit his new employer.
Investment News
TD Bank vs. Former Advisors Joining Raymond James (2024): TD Bank filed a lawsuit against former advisors Brett Bartkiewicz and Gregg Desmarais, who left for Raymond James. The suit alleges they breached non-solicitation agreements and took confidential information to their new employer.
Trade Secrets Law
Freeman & Co. vs. Tony Seto (2018): Freeman & Co. filed a lawsuit against former fintech banker Tony Seto, accusing him of stealing trade secrets before joining a rival firm. The case was eventually settled, with terms undisclosed.
Investment News
Jane Street vs. Millennium Management (2024): Jane Street filed a lawsuit against Millennium Management, alleging that former employees took a proprietary trading strategy to their new employer. The case was settled, with terms undisclosed.
Business Insider
DraftKings vs. Michael Hermalyn (2024): DraftKings sued former executive Michael Hermalyn, accusing him of stealing trade secrets before moving to rival company Fanatics. The lawsuit was settled confidentially.
New York Post
Charles Schwab vs. Roberto Ortega (2024): Charles Schwab filed a lawsuit against former financial advisor Roberto Ortega for breaching a nonsolicitation agreement after he joined another advisory firm. The lawsuit alleges Ortega accessed client records before resigning to solicit Schwab clients for his new firm.
Barron's
Ameriprise Financial vs. LPL Financial (2024): Ameriprise Financial filed a lawsuit against LPL Financial, accusing it of harvesting and misusing confidential client information from advisers who transitioned from Ameriprise to LPL. LPL denied the allegations, stating that Ameriprise is attempting to stifle competition.
Reuters
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