NEW YORK - Banc of America Investment Services Inc., the retail-securities arm of Bank of America Corp., last month lost an NASD arbitration claim worth $3 million to disgruntled former brokers, and the firm may be on the hook for more.
The arbitration claim centered on promises Banc of America and a branch manager in San Diego, David Ohanian, made to three brokers when they left a Merrill Lynch & Co. Inc. office in suburban Cleveland and moved their families to southern California, according to the attorney for the three ex-brokers.
In May 2003, Banc of America Investment Services hired Michael Parziale, Richard Ina and Daniel Morilak, known as The PIM Group, from Merrill Lynch, promising the brokers access to bank branches in southern California with close to $3 billion in client deposits, according to their attorney, Daren H. Lipinsky of Chino Hills, Calif.
The brokers never saw that wealth of deposits, he said.
What's more, they never saw a sophisticated investment platform that rivaled a top wirehouse or a promise of an initial $25 million book of business, Mr. Lipinsky added.
The brokers complained in July 2004 to Mr. Ohanian and then to Banc of America management, according to Mr. Lipinsky. After an internal examination by the bank, the firm fired the brokers in November 2004, the attorney said.
Banc of America in March 2005 filed an arbitration claim seeking%A0;the brokers to pay back their promissory notes, which are bonuses for signing with a new firm.
The brokers filed a counter-
arbitration claim and a lawsuit in California Superior Court, and Sept. 27, Mr. Parziale, Mr. Ina and Mr. Morilak won an arbitration award totaling $1.6 million in compensatory damages.
Along with that, the three-member arbitration panels dismissed Banc of America's claim that the three advisers owed the firm $1.4 million.
The lawsuit continues.
In the arbitration case, a Banc of America adviser testified that his team was promised the same book of business that The PIM Group was promised, Mr. Lipinsky said.
"What's extraordinary is that the arbitration panel found that the recruitment process was so tainted, in my opinion, that the brokers didn't have to pay back the loan," he said.
Mr. Lipinsky said that he has spoken to four other registered representatives who have similar tales of Banc of America's broken promises.
"I have other brokers who have given me proof they were subjected to misrepresentations by the same branch manager," he said.
Banc of America Investment Services and its parent company are based in Charlotte, N.C.
For a brokerage firm such as Banc of America to lose a claim on promissory notes to brokers was quite unusual, industry observers said.
"For Banc of America not to recover on promissory note money is really rare in arbitrations," said Andrew Stoltmann, a plaintiffs' attorney in Chicago. He estimated that firms win 95% of such cases.
NASD arbitration decisions don't include a detailed or reasoned explanation of cases, Mr. Stoltmann noted, so it was difficult to decipher the reasoning specific to this claim.
But after reading the arbitration decision, he said: "It appears Banc of America must have done something egregious or upset the arbitration panel."
And the legal wrangling between the former Banc of America brokers and the firm isn't going away anytime soon.
The brokers and their wives, who also are plaintiffs, are pursuing the case in court in San Diego State Superior Court. The brokers are claiming wrongful termination, and their wives are alleging fraud and misrepresentation, Mr. Lipinsky said. They are asking for a combined $29.2 million in compensatory damages.
In the court case, the three brokers claim that they complained about the misrepresentation of the recruiting deal and then were fired, Mr. Lipinsky said.
Banc of America isn't backing down, a company spokeswoman said.
"This%A0;arbitration will be reviewed as part of the lawsuit filed in San Diego Superior Court, so it's a long way from being over at this point," wrote Banc of America spokeswoman Shirley Norton in an e-mail. "This is only round one."
Even though Banc of America lost its arbitration claim and the brokers' counterclaim, Ms. Norton said in her e-mail, the decision was a victory.
"We think this arbitration validates our rescission of the contract," she wrote. "We also believe their claims are without merit, and we intend to vigorously defend against their claims."
Mr. Ohanian, meanwhile, remains with Banc of America as a senior vice president, division sales executive in its premier banking and investments group. Ms. Norton said that Mr. Ohanian wouldn't comment about the arbitration claim or ongoing lawsuits.
Mr. Parziale, Mr. Ina and Mr. Morilak all joined Wells Fargo Investments LLC in San Francisco after leaving Banc of America in 2004.
When Banc of America Investment Services recruited Mr. Parziale and his team from Merrill Lynch, Banc of America was kicking off a major expansion, promising to beef up its retail-brokerage presence (InvestmentNews, April 21, 2003).
At the time, chief executive Kenneth D. Lewis said that the bank's goal was to open 550 branch offices that would sell a variety of banking and financial services products.
Industry observers familiar with Banc of America's plans said they were put on hold.
But recruiting Mr. Parziale and his team was considered by some to be quite a coup for Banc of America, industry observers said. The three brokers generated commissions at Merrill Lynch of $2.4 million a year, according to their lawsuit.
"In general, banks have had a tough time, historically, recruiting top-tier producers," said Danny Sarch, a recruiter based in White Plains, N.Y.