The Fresno Raiders

Late one Friday afternoon in November 1975, executives at the Los Angeles headquarters of Bateman Eichler, Hill Richards Inc., California's largest brokerage firm, got a series of disturbing phone calls. All 25 employees in the firm's Fresno office--17 account representatives, two trainees, six back-office assistants--announced that they were quitting, with no advance warning. Most distressing to Bateman Eichler was the employees' destination. They moved en masse across Shaw Avenue to open, on Monday morning, the brand-new Fresno office of Bateman Eichler's competitor, Paine, Webber, Jackson & Curtis.

Even by the standards of the securities industry, whose firms constantly raid each other for experienced employees, spiriting away an entire branch office was an unusual act, and last week it brought an unusual judgment. An arbitration panel of the New York Stock Exchange ordered Paine, Webber to pay Bateman Eichler almost $1.1 million in damages. In addition, the arbitrators assessed damages totaling $45,000 against three of the former Bateman employees for conspiring to engage in unfair competition. The damages were less than the $2.5 million that Bateman had asked in a California court suit filed on the Monday that the Fresno employees switched allegiance (the court tossed the case to the Big Board), but the penalty is still the heaviest ever imposed by the exchange against a single member firm.

Widespread Practice. The award seems likely only to make Wall Street's employee rustlers a bit more circumspect, not to stop their activities. Last week brought new indications of how widespread the practice is. Just as the N.Y.S.E. award was being announced, Manhattan-based Bache Halsey Stuart Inc. sued Loeb Rhoades & Co. Inc. for $5 million damages, charging that Loeb Rhoades had pirated 17 salespeople out of its New Orleans and Orlando, Fla., offices. Bache also sued its former managers of those offices for conspiring with Loeb Rhoades to purloin trade secrets, and asked the New York courts to stop the firm from using any customer information that the Bache employees might have taken along with them. Loeb Rhoades strongly denies doing anything wrong.

Why the game of musical chairs among brokerage offices? In the securities industry, as in the insurance and advertising businesses, specialized skills and customer contacts are all-important. Wall Street firms often find it cheaper to hire a competitor's employee than to train someone new, and that the easiest way to win accounts from a rival is to hire the brokers who service them. Even the firms that count themselves aggrieved may be wooing away employees from rivals. Only a month before its Fresno office defected, Bateman Eichler hired five members of the trading department of Mitchum, Jones & Templeton Inc. And Loeb Rhoades, in response to the Bache complaint, asserted that Bache two years ago had lured away its entire foreign institutional department. Loeb Rhoades did not sue, says a spokesman, because "those are the breaks of the game."

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