HighTower Advisors LLC, a high-profile, high-pedigree investment advisory firm, has been dogged by a series of investor and business lawsuits that could threaten its distinguished reputation, according to a recent article by Bruce Kelly in InvestmentNews.
HighTower caught the industry’s attention when it was launched in 2008. It boasts a number of highly successful advisers. HighTower has approximately 30 adviser representatives and $16 billion in assets under management.
Its founders include former Morgan Stanley chief executive Philip Purcell and David Pottruck, ex-CEO of The Charles Schwab Corp. In early 2009, the firm recruited Richard Saperstein from J.P. Morgan Securities Inc. and his $10 billion book of high-net-worth clients.
Perhaps the most troubling are recent lawsuits and claims related to a HighTower’s selling of private notes issued by a feeder fund that fed funds into what turned out to be a $1.4 billion Ponzi scheme.
In the post-Madoff era, wealthy clients demand safety and need a lot of convincing to move accounts from white-shoe private banks such as The Goldman Sachs Group Inc. or JPMorgan Chase & Co., Rick Peterson, a recruiter, said. “This is a pristine firm, and it’s saying, “We’re only going after ultra high-net-worth clients,'” said Peterson. “This kind of puts a dent in it.”
The firm has also been accused of business misconduct that unfortunately lends itself to the notion that, for all its high-profile, high-pedigree players, the arena in which it operates is, after all, a shark tank, and, if one wants to swim with the sharks (and survive) one must be one of the bigger, badder sharks.
In February, the firm was sued by Morgan Stanley Smith Barney for allegedly improperly soliciting its brokers, who left and went to HighTower, and took with them $500 million in assets and confidential information.
Back in 2008, HighTower was sued for improperly interfering with a competing firm’s business. The lawsuit filed in federal court in Texas alleged that HighTower’s former CEO, Elliot Weissbluth, while president of U.S. Fiduciary Inc., a broker-dealer and advisory firm, altered the employment agreements of certain brokers of U.S. Fiduciary Inc. making it legally possible for them to leave the firm, and thereby interfered with U.S. Fiduciary’s business relationships. Moreover, Weissbluth allegedly commandeered meetings with prospective investors and tried to shoulder aside U.S. Fiduciary.
For example, U.S. Fiduciary allegedly had extensive discussions with potential investors about investing in Fiduciary, “but suddenly, Weissbluth held a surprise meeting with Purcell that excluded Fiduciary,” the lawsuit claims, and the potential investor “lost interest in investing in Fiduciary immediately after his surprise meeting with Weissbluth.”
Whether or not there is merit in any of these allegations, the trail of legal controversies may present problems for firms such as HighTower that seek to differentiate themselves from the huge wirehouse brokerage firms.