August 24, 2012 / 7:08 PM / 6 years ago

Merrill to pay $40 million in deferred compensation suit

(Reuters) - Merrill Lynch has agreed to a proposed $40 million class action settlement with 1,400 brokers over deferred compensation it refused to pay them after its merger with Bank of America.

The Merrill Lynch logo is seen on a building in New York, May 7, 2012. REUTERS/Keith Bedford

But the proposed deal may still leave roughly 2,000 brokers to battle privately against the brokerage. About 3,300 brokers left Merrill after the BoA deal.

Former Merrill brokers would be excluded from the deal if their revenues topped $500,000 during a certain period prior to their departure, according to the terms presented by the parties to U.S. District Judge Alison Nathan at Manhattan federal court on Friday.

Others who accepted bonuses from Merrill, following its acquisition by Bank of America Corp (BAC.N), waived certain legal rights regarding deferred compensation claims and would also be excluded.

The suit stems from Merrill’s September 2008 merger with Bank of America. At issue are years of deferred compensation, some of which was held in brokers’ stock savings plans. Merrill disclosed a settlement, but not its terms, in a regulatory filing earlier this month. <ID: nL2E8JM5F7>

The proposed deal would help “lower producing” brokers who left Merrill after the merger, said Charles McCallum III, an Alabama-based lawyer who represents two former Merrill brokers, Scott Chambers and John Burnette, the lead plaintiffs in the case.

McCallum and lawyers for Merrill presented the settlement to the court. Payments could still be months away. The court must approve both the settlement and the parties’ definition of the class. Merrill would also need to follow a procedure and time frame for notifying claimants.

Merrill denied its former brokers’ requests for deferred compensation, money typically paid when a broker stays at a firm for a certain number of years, when they left the company. But brokers can also get the money if they leave for “good reason.” Many of the departing Merrill brokers say the merger constituted such a “good reason.”

Most advisers potentially covered by the settlement would receive between 40 percent and 60 percent of their account values, McCallum told the court.

McCallum also requested 25 percent of the total - $10 million - for his legal fee.

The $40 million figure was based on a stock price of just below $42 per share, the value of Merrill shares in September 2008, three months before the effective date of its acquisition by Bank of America.

“The stock price is too low,” said Michael Taaffe, a lawyer in Sarasota, Florida, who represents more than 1,000 former Merrill brokers in the Financial Industry Regulatory Authority’s arbitration forum. Of those, 572 would be eligible for the class, he told reporters after the court proceeding.

Other valuation choices available for the plan would lead to a higher stock price and a larger award for the brokers, Taaffe said in an interview.

While Taaffe still has to review the proposed settlement with eligible clients, he can object to the terms at an upcoming hearing in the process, he told reporters.

Some brokers may get a more lucrative outcome in arbitration, especially if the $40 million settlement pool is reduced by $10 million to pay McCallum’s legal fees, according to Marc Dobin, a lawyer in Jupiter, Florida who represents brokers, but who is not involved in the case.

In April, FINRA arbitrators ordered Merrill to pay $10.2 million to two former brokers represented by Taaffe.

“I’m not sure that staying in the class and not going to arbitration makes sense, especially for larger amounts,” Dobin said. “But if it’s a smaller amount, it’s essentially a gift those brokers have already written off,” he said.

Mary Hackett, a lawyer for Merrill also asked the judge to consider language in the proposed settlement that would say the brokerage is not admitting to liability.

Lawyers, who learned about the proposed settlement this week through media reports, are already arguing the deal is an admission of liability that can bolster their clients’ individual cases against the firm, Hackett told the judge.

The case is Scott Chambers et al v. Merrill Lynch & Co., Inc., et al, U.S. District Court for the Southern District of New York, No. 10-cv-7109.

Reporting By Suzanne Barlyn in New York.; Additional reporting by Ashley Lau.; Editing by Walden Siew, Leslie Gevirtz and Andre Grenon

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