Morgan Stanley has sued a former adviser in federal court, alleging that he is breaking his restrictive covenants after he started a new practice and retained custody with Charles Schwab.
Morgan Stanley filed suit seeking a temporary restraining order against Zakariah Gardezy in Arizona federal court, alleging he breached contract after he left the firm earlier this month.
Gardezy joined Wells Fargo in 2017 and left for Morgan Stanley in 2021, he said. BrokerCheck Profile. This lawsuit was first reported by AdvisorHub.
Gardezy was a financial adviser associate when he resigned, with Morgan Stanley claiming he had “developed a small business on his own”. The firm allegedly set him up with a team of advisors managing about $2 billion in assets (with nearly $8 million in annual gross income).
Through this pairing, Morgan Stanley alleged that Gardezy gained privileged access to clients; In addition, Morgan Stanley transferred existing clients with tens of millions in assets to Gardezy, according to the lawsuit. Many of the referrals for Gardezy's team came from Morgan Stanley's E*Trade division (the wire acquired that firm in 2020).
On March 15, Gardezy resigned from Morgan Stanley's Scottsdale, Ariz. office. Unlike many who set out for an established firm, Gardezy created a solo practice, Whitestone Private Wealth Management.
Gardezy filed the firm with the SEC the same day he resigned (although his registration as an advisor has not yet been updated). signature reported no initial assets on his Form ADV as he was a “newly registered adviser”. Gardezy did not respond to a request for comment before publication.
The firm safeguards its clients' assets through Schwab and bills itself as a fee-only fiduciary firm, offering “comprehensive financial planning, in-depth portfolio analysis, along with meticulous investment management, all delivered in a cost conscious and the personalized touch of a boutique family office,” according to its website.
After resigning, Gardezy allegedly contacted Morgan Stanley clients, including many who were originally referred to Gardezy by E*Trade. According to the lawsuit, Gardezy offered “significant fee discounts” if clients left Morgan Stanley for Whitestone. In the case of a former E*Trade client, Gardezy promised a 50-basis fee discount if the client switched firms.
“Additionally, shortly after (Gardezy's) resignation, another client confirmed to Morgan Stanley that (Gardezy) had already contacted the client and during the client's call with Morgan Stanley, confirmed that (Gardezy) was calling the client 'as we fol'”, the complaint said.
In a statement, a Morgan Stanley spokesman said the wire office “will take appropriate action to ensure that departing employees comply with their legal obligations.”
In addition to the lawsuit and request for a restraining order, Morgan Stanley also filed an arbitration against Gardezy with FINRA, claiming that the ib/d regulator will schedule an expedited hearing on Morgan Stanley's request for a permanent injunction within 15 days.