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Merrill $40M Class-Action Settlement With Advisers Could 'Open a Pandora's Box'

About 1,500 former advisers would qualify for the deal, which would settle the class action filed in October 2009 by brokers claiming rights to stock grants that had not been fully vested before the Bank of America acquisition.

August 24, 2012
Related Topics: Miscellaneous Legal Issues, Mergers and Acquisitions, Deferred Compensation, Policies and Procedures, Latest News

A $40 million settlement between Bank of America Merrill Lynch and some of its lower-producing former financial advisers was intended to put an end to long-running litigation. Instead, the proposed agreement might incense the firm's higher-producing advisers who left after the bank acquired the brokerage in early 2009, lawyers said.

Details of the agreement, struck with former Merrill Lynch advisers who were producing $500,000 or less and who didn't sign retention agreements, were revealed in U.S. District Court in Manhattan, New York, on August 24.

About 1,500 former advisers would qualify for the deal, which would settle the class action filed in October 2009 by brokers claiming rights to stock grants that had not been fully vested before the BofA acquisition. Former Merrill brokers participating in the class action will be given the option of accepting the offer, objecting to the terms — ordering lawyers to go back to the table — or opting out of the class.

Lawyers and analysts have estimated the potential liability to Merrill could be in the $100 million range and involve a total of 3,000 former advisers.

"We have agreed to a resolution to avoid the cost and distraction of what would likely be continued, lengthy litigation," said Bill Halldin, a Merrill Lynch spokesman.

David Gehn, who represents a handful of former Merrill brokers as a partner at the law firm of Gusrae Kaplan Bruno & Nusbaum PLLC, said he doesn't believe the agreement will be well received. "This could inflame the passion and cause folks who are not included to get more aggressive and assertive because they see a certain subset of folks having their defined-contribution accounts dignified, where theirs are not," he said.

Lesser-producing brokers will have to evaluate what their part of the $40 million will be relative to what they claim they should have received from the deferred compensation plans, Gehn said. He doesn't believe any of his clients would be covered under the settlement.

"If it can be deemed fair and reasonable, then I see the benefit to Merrill and the advisers to maintain the class," Gehn said. "However, if it doesn't, I think they will open a Pandora's box of further and future issues with these advisers, as well as the larger producers."

The settlement will be "great for Merrill and consistent with the corporate playbook to mop up as many claims as possible and minimize any further exposure," said James J. Eccleston, founder of the Eccleston Law Offices PC.

Brokers who left behind more than $100,000 in the the deferred compensation plan will probably do better by arbitrating their claims, he said.

Eccleston said he heard from about 25 prospective broker claimants after news broke last week about the settlement.

Lawyers representing former Merrill brokers, point to an April arbitration ruling ordering Merrill to pay representatives $10.2 million in the dispute over deferred compensation, as a possible impetus for Merrill's decision to settle.

In that case, a three-person Financial Industry Regulatory Authority Inc. panel awarded two former Merrill brokers, Tamara Smolchek and Meri Ramazio, $4.3 million and $875,000, respectively, in compensatory damages, plus another $5 million in total punitive damages and $100,000 for discovery abuse.

Merrill Lynch has filed a petition to vacate that ruling with the U.S. District Court for the Southern District of Florida alleging arbitrator bias, and it is still pending, Halldin said.

Michael Taaffe, who represented the two brokers as a partner with Shumaker Loop & Kendrick LLP, described the Merrill agreement as "an acknowledgement by the company that they have a liability and this is an effort to limit that liability."

Gehn cites the Finra award both as a benchmark and motivation for Merrill brokers who left following the BofA acquisition without benefiting from fully vested stock grants.

"There is no surprise that Merrill wants to settle, because it's difficult to imagine their potential liability," he said. "But if you look at the Smolchek award after the arbitration, it demonstrates the validity of the claims."

Jeff Benjamin and Liz Skinner write for InvestmentNews, a sister publication of Workforce Management. To comment, email

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