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Brokerages Agree Not to Block Account Transfers

Securities: Regulators say investors should not be caught between competing firms.

November 21, 2001|Bloomberg News

Merrill Lynch & Co., Morgan Stanley Dean Witter & Co. and Salomon Smith Barney have agreed to stop trying to block customers from transferring accounts to their brokers after the brokers have switched firms.

The three largest U.S. brokerages acted voluntarily after being approached by state securities regulators concerned that investor interests were harmed by legal disputes between competing firms, said Joseph Borg, president of the North American Securities Administrators Assn., which represents state regulators.

"We don't think customer accounts should be held hostage to a legal dispute between two firms," said Borg, who also is Alabama's top securities regulator.

The association on Tuesday threatened to fine brokerages that try to use the courts to stop customers from following their brokers to new firms. Some states can impose fines of as much as $500,000 for each account that's blocked, Borg said.

Dozens of large firms have filed lawsuits in recent years when brokers have moved to competing firms. The suits, seeking temporary restraining orders, have been lodged against the new firms to stop them from accepting transfers of the brokers' former customer accounts.

Court orders have stopped thousands of customers from consulting their brokers on trades for as long as a week until cases are settled, Borg said. Customer loyalty to brokers causes many customers to try to follow brokers when they change firms.

"Merrill, Morgan Stanley and Salomon are saying they'll bend over backward not to interfere with customer rights, but I doubt they're going to give up the right to protect their customer base," said Tony Djinis, a Washington lawyer who advises firms on account transfer issues.

State regulators don't oppose efforts by brokerages in court to enforce employment contracts that bar brokers from soliciting former customers after the brokers change firms, Borg said.

Nine brokerages--including Merrill, Morgan Stanley and Salomon--have agreed to state regulators' requests to stop trying to block account transfers initiated by customers, said Utah securities chief Tony Taggart. He didn't know the other six firms.

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