(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.
Yearlong Drama
“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).
--With assistance from David Voreacos.
(Updates with Merriman lawsuit. A previous version of this story corrected Merriman’s position.)
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