Merrill Lynch on the hook for $3.7M after clients claimed sale of unsuitable private equity

Merrill Lynch this week was on the losing side of an industry arbitration panel that decided Merrill will pay clients close to $3.7 million in damages and legal fees for private equity investments the clients claimed to be inappropriate.

The clients, Qun He and Haihui Zhang, sued Merrill Lynch in 2023 via FINRA Dispute Resolution Services, which oversees investor complaints in private arbitration. The clients charged Merrill Lynch with negligence, breach of fiduciary duty and other claims over “unspecified securities,” according to the arbitration award, which was issued Monday. 

The three-person arbitration panel did not give any reasoning for their decision, which essentially requires Merrill Lynch to buy back the private investments from He and Zhang. The hearing was held in Los Angeles. 

The bulk of the award was in two parts: $2.7 million in compensatory damages to the clients and $955,000 in legal fees.

In the BrokerCheck profile of Chelsea Deng, the financial advisor involved in the matter but not sued by the clients, the investments are described as private equity in Deng’s response to the clients’ allegations.

“I vehemently deny the allegations stated in the arbitration,” Deng wrote. “The customers understood and appreciated the investments, which were appropriate given the customers’ age, liquidity, net worth, risk tolerance and time horizon.”

“It is my understanding that the private equity investments at issue have performed as expected and have generated a positive return,” according to Deng.

Deng started in the securities industry in 2000, working for Morgan Stanley in Los Angeles, before moving to Merrill Lynch, where she worked from 2006 to 2019, according to her BrokerCheck profile. She then returned to Morgan Stanley, where she still works in Beverley Hills.

A Merrill Lynch spokesperson declined to comment about the matter. 

Michael Bixby, the attorney for He and Zhang, was not avaiable to comment on Wednesday. 

Some investors recently have seen million dollar plus decisions by FINRA arbitration panels involving complex products go their way.

InvestmentNews reported almost two years ago that Chuck Roberts, a veteran financial advisor with Stifel Nicolaus, faced a rash of investor complaints stemming from the sale of potentially volatile structured notes, the performance of which is typically tied to an underlying asset, such as a specific stock or an index like the S&P 500 stock index.

Stifel began losing investor complaints in 2024, as investors won multi-million awards in the securities industry's private legal forum, FINRA Dispute Resolution Services. Most notably, Stifel this winter lost a stunning $133 million claim to David Jannetti and family members, who in 2023 sued the firm.