Merrill Lynch Deferred Compensation Lawsuits Likely to Follow $10M Award

After an arbitration panel awarded more than $10 million to two former Merrill Lynch brokers in a deferred compensation lawsuit, the brokerage firm may face hundreds, or even thousands, of additional financial fraud claims brought by former employees.

Earlier this year, a panel of arbitrators through the Financial Industry Regulatory Authority (FINRA) awarded $10.2 million to Tamara Smolchek and Meri Ramazio, former brokers who left Merrill Lynch after the firm merged with Bank of America in 2008. The employees alleged that they were wrongfully denied Merrill Lynch deferred compensation benefits.

On April 3, Smolchek and Ramazio were respectively awarded $4.3 million and $857,000 in deferred compensation, which Merrill Lynch claimed they were only entitled to receive if they stayed with the firm for a set period of time or left for good reason. The panel also awarded an additional $3.5 million and $1.5 million, respectively, in punitive damages and $100,000 for discovery abuse as a result of Merrill Lynch’s treatment of the employees.

Similar Merrill Lynch deferred compensation claims may be available for other stockbrokers who left the company around the same time. Smolchek and Ramazio argued that Merrill Lynch’s acquisition by Bank of America in September 2008 met the definition of good reason.

Following a hearing before a panel of three arbitrators through FINRA, it was determined that Merrill Lynch acted inappropriately in denying the deferred compensation, suggesting that the company put a “sham” committee in place to review whether employees would receive the compensation. According to the findings, the committee routinely rejected claims and failed to provide credible documentation on how it reviewed the claims.

The FINRA panel also fined Merrill Lynch for abusive and fraudulent conduct. Merrill Lynch is currently challenging the ruling on grounds that the panel was biased.

Although FINRA arbitration decisions have no presidential power, the findings could encourage other former Merrill Lynch employees to bring claims over denials of deferred compensation.

Approximately 3,000 Merrill Lynch brokers left the company after it was taken over by Bank of America, however the arbitration panel noted that not a single claim for deferred pay was approved for “good reasons” by the committee.

FINRA is a non-governmental regulatory body that handles the resolution of disputes between investors, stockbrokers and other financial firms. It was created in July 2007 as a successor to the National Association of Securities Dealers, to arbitrate stock broker fraud claims that can include charges of breach of contract, breach of fiduciary duty, negligence, misrepresentation, unauthorized trading and other claims that investments were improperly handled.