Last week, Salomon & Ludwin, a registered investment adviser based in Richmond, Va., filed suit against four former team members and their newly launched RIA, Founders Grove Wealth Partners, alleging they intentionally misappropriated the firm's trade secrets to solicit clients and breached their employment agreements.
This week, the defendants filed court documents in response, claiming the team was protected by the Intermediary Recruitment Protocol, an agreement that allows departing advisers to obtain certain information about clients and solicit them, regardless of whether they had notices that expressly prohibited such behavior. Founder Grove joined the Protocol recently, and S&L has been a member since 2018, according to JS Held, the company that administers the deal.
The lawsuit names Founders Grove and four former S&L employees, including Jeremiah Winters, founder, managing partner and CEO of Founders Grove; Kate Atwood, founder, managing partner and president; Chief Operating Officer Jen Thompson; and Director of Customer Experience Abbey Sorensen. Founders Grove was established last week with the backing of Dynasty Financial Partners.
“Based on the Protocol, Mr. Winters and Mrs. Atwood may retain the following list of customer information upon their resignation from the S&L: customer names, customer addresses, customer phone numbers, customer email addresses, and customer account titles,” the court filing said . . “They retained that information, as they were permitted to do, and provided S&L with the most complete list of information required by the Protocol.”
The response also characterized the allegations against Thompson and Sorensen as “disingenuous,” pointing to their resignation letters, which were not attached to the original complaint.
In her resignation letter, Sorensen cited “poor communication with the team, lack of accountability, lack of direct and inconsistent decision-making,” “miscommunication in an attempt to manipulate us and force us into a preconceived plan.” , “lack of accountability”. among leaders, including “countless instances where Dan (Ludwin) has not been held accountable for his reckless behavior or decisions,” and “body shaming.” She also said she did not feel “fully supported and safe to express opinions and concerns without fear of repercussions”, feeling “undervalued” with leadership that saw “no value in expanding… roles and responsibilities”.
Thompson's letter said she raised concerns about the firm's culture, but there was “little or no meaningful change or improvement.” She also cited a “lack of receptivity to new ideas and a failure to recognize the importance of staying ahead of market developments,” a “lack of urgency and accountability from leadership” following the “discovery of a multi-million dollar trading error,” “Handling wrong” of an SEC audit in 2021 and “misinformation provided to regulatory authorities by Dalal Salomon”.
“Salomon & Ludwin is dismayed that its former employees have attempted to damage the firm's reputation by publicly releasing resignation letters that do not relate to employee misconduct and include statements that S&L denies,” it said. Denise Giraudo, an attorney with SheppardMullin, which represents the S&L, said in a statement. “The firm has always prided itself on the personalized attention it has given to clients and team members. The founders of Salomon & Ludwin personally mentored and invested in the four individuals who are the subject of the litigation. Unfortunately, the defendants exploited the goodwill of the founders for their own personal gain. The firm is proud of its continued growth and customer service that can only be attributed to the values espoused by the founders of Salomon & Ludwin. Our client will not back down and will continue to fight to protect their clients and decades of hard work.”
Founders Grove's response also contends that S&L non-solicitation agreements are not enforceable.
“The provisions fail because they impermissibly exceed the category of work done for the S&L by the defendants, the clients served by the defendants during their tenure at the S&L, and contain otherwise unreasonable restrictions,” it said.
The S&L filed a response, saying the Founders Grove team members “do not dispute that they created a competing entity while employed by the S&L and two months before they resigned en masse from the firm that invested in them and nurtured them. in financial advisory and client relations for more than a decade.
“They also do not seriously dispute that they began advertising and promoting their new firm, Founders Grove Wealth Partners, LLC (“FGWP”), while still employed by the S&L. Nor do they dispute that, in leaving S&L, they obtained confidential and proprietary information, including customer lists and account names, and have since used those trade secrets to solicit S&L customers. Indeed, Defendants do not raise the DTSA, S&L VUTSA, tortious interference, or breach of duty of loyalty claims at all.”
S&L calls Founders Grove's Protocol arguments “a red herring” because they did not sign the Protocol agreement until the day of their resignations, nearly two months after the new RIA was created. S&L further alleges that the employment and confidentiality agreements supersede the Protocol and that the team violated the rules of the Protocol by soliciting clients while still employed by the firm.
“They cannot use the Protocol as a sword and shield to justify their bad behavior,” S&L said.
S&L was founded in 2009 by Dalal Salomon when she took up her own independent practice. Her partner, Dan Ludwin, joined the firm in 2018. The lawsuit alleges that Salomon hired and trained financial advisors and operations professionals to exclusively serve her existing clients and their referrals. The firm now has a team of 12, including four advisors, four operational professionals, one trader and three executives.
S&L is seeking injunctive relief against Founders Grove, ordering the firm to disclose and use its trade secrets and proprietary information. The order also seeks to prevent them from interfering with the S&L's business dealings and soliciting any of its clients during the restricted period. S&L is seeking damages, disgorgement, attorney's fees and costs, and prejudgment and postjudgment interest.