Wells Fargo Securities, a unit of Wells Fargo & Co., asked the Second Circuit Court of Appeals late last month to uphold the dismissal of a suit brought by one-time business partner Williams Trading.
That suit, dismissed in April, alleged that Wells breached a partnership agreement with broker-dealer Williams by engaging in proprietary trading. U.S. District Judge Katherine B. Forrest decided the suit was meritless, arguing the two never had a fiduciary relationship.
Williams’ lawsuit alleged Wells Fargo violated a pact under which the firms operated a listed options desk that served both of their clients. Williams claimed Wells Fargo improperly made trades with its own money, after telling Williams it had no interest in proprietary trading.
On appeal, the Westport, Conn.-based agency broker challenged Judge Forrest’s finding that the firms had not created a joint venture and, thus, Wells Fargo did not have a fiduciary duty to Williams. The Connecticut brokerage also charged that the judge erred in ruling that Wells Fargo was free under the contract to engage in proprietary trading with funds from the options desk, Williams said.
Williams and Wells Fargo entered into an agreement in 2010 to operate a single options trading desk that would service both of their customers. Founded in 1997 by David “Tiger” Williams, Williams Trading is strictly an agency brokerage that represents to its clients that it does not trade for its own account.
In the appeals brief, Wells Fargo argued the scope of its deal with Williams was limited. Under the contract, Williams referred options customers to Wells and received a percentage of the options trading desk’s net revenues in return, according to Wells.
The options desk was “funded, equipped, housed and staffed” by Wells Fargo, while Williams contributed none of this and shouldered none of the potential losses, according to Wells. The district court properly determined that the relationship lacked any qualities of a joint venture, Wells said.
Wells Fargo also rejected the argument that the contract barred it from proprietary trading or that it required it to liquidate open positions at its partner’s behest.
“The agreement left trading decisions entirely up to Wells Fargo — the only party whose capital was at risk — and the agreement’s integration clause prevents Williams from relying on alleged extra-contractual oral promises to restrict Wells Fargo’s manner of trading,” the brief said.
According to Williams’ original suit, Wells Fargo engaged in proprietary trading after allegedly agreeing not to. Wells Fargo also failed to acquire the necessary software and equipment to allow for the transition of the Williams’ customers, according to the suit. Williams called the transition “nearly a disaster.”
The news was first reported by Law360.
