Due Diligence

Rebuked In $10 Million Comp Case, Merrill Fires Back

RSS

merrill-lynch-bull

In a scathingly-worded decision, a Financial Industry Regulatory Authority arbitration panel ruled Tuesday that Merrill must pay $10 million to two brokers, Meri Ramazio and Tamara Smolchek. The panel said Merrill fraudulently prevented the brokers from collecting deferred compensation when they left after Bank of America's takeover in 2008 (more on the scathing language later). A similar ruling came down in late 2010, when two brokers who had departed after BofA took ownership received $1.167 million for deferred compensation benefits that had been denied to them.

Merrill Lynch, beset by lawsuits from every direction, may be on the hook for millions in deferred compensation sought by brokers who left in the wake of BofA's acquisition of the firm if the Tuesday panel decision sets any kind of precedent.

But Merrill Lynch spokesman Bill Halldin says Tuesday's ruling is wrong, that it is an outlier and that the amount awarded bears no relation to the damages at issue. Merrill quickly filed a petition to vacate the ruling.

According to certain clauses in employment contracts throughout the industry, deferred compensation is supposed to vest if the brokers leave for “Good Reason.” After the Bank of America takeover, Merrill set up a “Good Reason Committee” to determine the merits of individual cases.

In the Tuesday decision, the panel rebuked Merrill sharply, saying that “directly and indirectly” through its senior management, it “intentionally, willfully and deliberately engaged in a systematic and systemic fraudulent scheme to deprive Claimants of their rights and benefits under its Deferred Compensation Programs,” in order to avoid liability after the change in control of the firm in 2008. Merrill “made fraudulent misrepresentations and withheld important information” from the brokers and “used other retaliatory and coercive tactics” against them, the panel wrote.

The decision even went so far as to name individual executives in senior management who used such tactics as part of the Good Reason Committee, including former Vice Chairman and President of Merrill Bob McCann.

“The decision here is radically different than findings where similar issues have been reviewed,” Halldin said. “We have asked a federal court to overturn the award on the basis of the panel's handling of this matter, limits that were imposed on our ability to present our case and the failure of the panel's chair to disclose important information about conflicts of interest,” Mr. Halldin.

In its appeal, Merrill claims that the chair of the arbitration panel is biased because her husband is an attorney who represents clients in disputes with Merrill, and that she failed to disclose this fact. It also claims that the panel "displayed overt hostility to Merrill Lynch," and that it refused to hear evidence relevant to the case.

The panel awarded compensatory damages of $4.3 million to Ms. Smolchek and $875,000 to Ms. Ramazio for unpaid wages and deferred compensation as well as lost wages, business and reputation, among other things. It also awarded punitive damages of $3.5 million to Ms. Smolchek and $1.5 million to Ms. Ramazio due to the alleged “intentional misconduct.”

Please or Register to post comments.

Blog Archive
Investment Category Sponsor Links

 

Sponsored Introduction Continue on to (or wait seconds) ×