More than 60 former advisors filed FINRA arbitration claims starting in September 2017, alleging damages of more than $400 million related to significant losses of the company’s stock value in their Merrill brokerage accounts during the financial crisis. While at the time Merrill allegedly blamed the markets, the advisors claim the stock losses were due to the company’s faulty sales of residential mortgage-backed securities. In August 2014, the Department of Justice reached a $17 billion settlement with the firm over its sales of the fraudulent mortgage-backed securities.
Merrill responded to the advisors’ claims by filing 12 federal court actions across the country, enjoining some 30 claimants from proceeding in FINRA arbitration. On March 27, the firm dropped nine of these cases: in six, the judges already denied the firm’s motion for preliminary injunction against FINRA arbitration but stayed the proceedings.
An action in the Central District of California was dismissed by the court on March 13. Merrill has appealed two other actions—in the Middle District of Florida and the District of New Jersey.
“They had spent a lot of time and money trying to defeat the employees’ rights to FINRA arbitration across the country,” said Michael S. Taaffe, lead counsel for the claimants and partner at Shumaker, Loop & Kendrick. “That’s a failed strategy on their part.”
Bill Halldin, a spokesman for Merrill, confirmed that the firm dropped the nine cases, but he declined to comment any further.
While claimants are alleging damages of more than $400 million, the firm’s liability could be triple that, at $1.2 billion, under the Racketeer Influenced and Corrupt Organizations Act.
“It’s a big exposure for them, so they were trying to get us to back down by showing two big law firms against us and filing all of these federal court pleadings hoping we would say, ‘Oh, we give up,’” Taaffe said.
It’s often more difficult to get such claims dismissed in arbitration, Taaffe said.
“The theory in FINRA is, if you bring a claim and you’ve been damaged, they’re going to hear you out,” he said. “And if there is a right to recovery, they’re going to grant recovery. It’s not so technical.”
Merrill lawyers argued in court that the stock losses involved Merrill Lynch & Co., which is not a FINRA member. Its stock ceased trading on Jan. 1, 2009, with the firm’s merger with Bank of America.
“Issues surrounding the drop in the former Merrill Lynch & Company stock price more than 10 years ago were the subject of extensive litigation addressed in the courts many years ago,” Halldin said in a statement. “The time to bring claims ended long ago.”
