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Merrill Lynch’s Battle Royale With Former Brokers

Two months ago, Merrill Lynch was ordered to pay more than $10 million by a Financial Industry Regulatory Authority (FINRA) arbitration panel to two former brokers – Tamara Smolchek and Meri Ramazio – who had sued Merrill Lynch for deferred compensation they lost after leaving for Morgan Stanley in 2008.

Following the decision, Merrill Lynch went to court to try to get the award overturned on allegations of arbitrator bias.

As reported June 7 by Reuters, the detailed arbitration ruling in the case offers insight into the way in which Merrill Lynch is fighting claims from former brokers.

“Merrill has been very aggressive and has tried to make an example of former brokers who dared to question anything ‘Mother Merrill’ has done,” said Steven Caruso of Maddox Hargett & Caruso in New York, in the Reuters article. Caruso also is chairman of a FINRA advisory group that weighs in on arbitration rules and procedures.

At issue are years of deferred compensation held in stock savings plans. Typically, that money is only paid if a broker stays at the firm for a certain number of years. But brokers also get paid if they leave for “good reason” as defined by the compensation plans. More than 3,300 brokers left Merrill Lynch after its September 2008 merger agreement with Bank of America.

After Merrill denied their deferred-pay requests, many of the brokers are pursuing claims that the merger constitutes good reason for collecting their deferred pay.

Meanwhile, Merrill says the cases are without merit.

“Financial advisors who received stock awards understood that they would forfeit any unvested stock if they decided to leave the firm,” a Merrill spokesman said in the Reuters story. “Merrill Lynch’s acquisition by Bank of America alone didn’t trigger any change to that as an acquisition by itself does not provide any basis for these type of claims.”

But FINRA’s 16-page ruling that resulted in the $10.2 million award for former Merrill Lynch brokers Smolchek and Ramazio apparently deems otherwise. Not only do arbitrators disagree with Merrill’s stance, but they also detail the firm’s treatment of its brokers and its tactics during the hearings.

Merrill “made fraudulent misrepresentations and withheld information from claimants,” the arbitration panel said in part in its decision “and used other retaliatory and coercive tactics against (brokers) to accomplish its unlawful objective” of withholding pay.

Read the complete Reuters story here.

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