A former Merrill Lynch broker has accused the firm of interfering with a regulatory inquiry into a case in which it allegedly skirted responsibility for advice given on a tax loss trade.
The representative, Anthony D'Ascoli, who is now with UBS Financial Services Inc., stated in court filings and an arbitration claim that Merrill Lynch & Co. Inc. wanted to revise a written response he was preparing for the Financial Industry Regulatory Authority Inc. concerning a customer complaint.
“Merrill Lynch attempted to interfere with an ongoing regulatory investigation by covering up the fact that the firm had followed an incorrect policy,” he said in a court filing.
Mr. D'Ascoli claims that the firm's advisory service desk told him he could engage in tax loss selling in a discretionary managed account without receiving specific timing authorization from the client.
But almost immediately after taking the loss, the market surged, and in March of this year, the client filed an unauthorized-trading complaint.
Mr. D'Ascoli said he wanted to tell Finra that Merrill had given him the OK for the trade and that he “felt abandoned” by the firm after it refused to take responsibility for the error and for its lack of written supervisory procedures relating to the tax-selling issue.
But after showing the letter to Merrill attorneys, Mr. D'Ascoli claims, the firm “demanded ... that he instead sign a "revised' statement” that “eliminated every single paragraph where he talked about [Merrill's] role in the error.”
Mr. D'Ascoli said that after refusing to alter his letter, he had no choice but to resign from Merrill in June. In September, he filed an arbitration claim.
Michael Schwartzberg, Mr. D'Ascoli's attorney and a partner in Winget Spadafora & Schwartzberg LLP, declined to comment on the case, and Mr. D'Ascoli was not available for an interview.
Mr. D'Ascoli's allegations only recently came to light, because Merrill is pursuing him in New York state court over repayment of a $1 million retention payment he received early this year. His arbitration claim was attached as an exhibit in the court proceeding. Unlike Finra arbitration records, court documents are public.
Mr. D'Ascoli is attempting to get the repayment dispute sent to arbitration and be heard along with the rest of his claims. He is one of at least a dozen brokers who have left Merrill and found themselves subject to controversial legal proceedings this year over repayment of their retention deals.
In some cases, brokers are shooting back and airing dirty laundry in public.
For example, former Merrill broker Paul Gomez filed an arbitration complaint in October claiming that the firm wrongfully fired him for “exercising discretion and making unsuitable trades.”
Merrill is suing Mr. Gomez in New York court to recover $1.16 million of a $1.24 million retention deal it claims that Mr. Gomez has yet to earn. Like Mr. D'Ascoli, Mr. Gomez filed his arbitration claim as an exhibit in the court action.
“Because the firm didn't want to pay the retention bonus, it came up with this bogus cause for his termination,” said Aimee Dominguez, a partner in the Dominguez Law Group, who represents Mr. Gomez.
“We believe it's a pattern,” she said.
“We certainly deny” that any brokers were terminated to allow Merrill to avoid paying bonuses, spokesman William Halldin said. He declined to comment further on specific broker cases.
Mr. Gomez, who is now with Sagent Wealth Management, is trying to get the case moved to arbitration.
Another former Merrill broker, Chadwick Collins, who got a $426,000 retention package and now works for Wells Fargo Advisors LLC, said in a court filing that he was fired last June by Merrill over a “trumped-up margin violation” in his own account.
He claims that his departure occurred after several confrontations with his district manager over pressure to sell Bank of America Corp. mortgages.
Merrill Lynch International Finance Inc., which is the legal entity pursuing brokers in New York courts for unpaid balances, is arguing that it is not a broker-dealer and has not agreed to arbitrate any disputes.
Brokers who took the deals said they had no idea MLIF was the lender and that they never knowingly gave up their right to arbitrate disputes with Merrill.
“This is the first I've seen a member firm attempt to circumvent its obligation to arbitrate by having another non-member-firm affiliate issue the check to the broker,” Mr. Schwartzberg said.
Critics of Merrill's legal tactic said that the firm gains an advantage in bringing collection cases to New York courts, which tend to uphold contracts.
“We will arbitrate other claims, where appropriate, raised by these individuals,” Mr. Halldin wrote in an e-mail.
One broker has scored at least a temporary victory in the court battles. Former Merrill broker Conway Donaldson, who last April went to Morgan Stanley without paying back his $159,000 retention payment, won a court order in October compelling his old firm to arbitrate.
Merrill is appealing that decision.
Shortly after Mr. Donaldson's victory, though, another judge denied a similar request by Mr. Collins.
“The [retention] agreements very clearly stated that they would be enforced in New York” courts, Mr. Halldin wrote. “These individuals agreed to repay the money.”
But “there's no badge of valor” in paying back a promissory note if you think you have claims against a broker-dealer, said David Gehn, a lawyer at Gusrae Kaplan Bruno & Nusbaum PLLC, who represents Mr. Donaldson.
“Generally, the best leverage is when you have the money,” he said.
Last January, about 6,200 Merrill brokers accepted retention packages in the wake of the Bank of America merger.
Brokers received up to 100% of their annual production. Three-quarters of it was paid upfront in cash with a seven-year note.
E-mail Dan Jamieson at [email protected].
