At first blush, this FINRA arbitration sets up as a fairly typical intra-industry dispute in which Merrill Lynch comes after a former registered person for the unpaid balance on a promissory note. You'd sort of expect a victory for the firm and a hefty bill for the former employee. Ahhh . . . but sometimes FINRA arbitrations throw us a curveball!
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2012, Claimants Merrill Lynch asserted: breach of a promissory note attendant to Respondent Meischen's alleged failure to repay a promissory note dated January 7, 2009, entered into between Claimants and Respondent. Purportedly, the unpaid balance became due and owing to Claimants upon Respondent's December 2011 termination. Claimants sought $807,270.88 in damages plus interest, costs, and attorneys' fees. In the Matter of the FINRA Arbitration Between Merrill Lynch International Finance, Incorporated and Merrill Lynch, Pierce, Fenner & Smith, Inc., Claimants/Counter-Claimants, vs. Danford Meischen, Respondent/Counter-Claimant (FINRA Arbitration 12-00152, July 26, 2013).
SIDE BAR: According to online FINRA documents as of July 30, 2013, Respondent Merrill Lynch, Pierce, Fenner & Smith Incorporated reported that it had "Discharged" Meischen on December 21, 2011 based upon the following allegations:
CONDUCT RESULTING IN MANAGEMENT'S LOSS OF CONFIDENCE CONCERNING A FEE AGREEMENT TO PAY A THIRD PARTY A PORTION OF REVENUE GENERATED ON CUSTOMER ACCOUNTS, AND NOT REPORTING TO SUPERVISORS AND IGNORING SUSPICIOUS MONETARY ACTIVITY IN A CUSTOMER'S ACCOUNT.
Defense Goes On The Offense
Respondent Meischen generally denied the allegations, asserted affirmative defenses, and filed a Counter-Claim asserting:
breach of employment contract;
violation of the Federal Wiretap Act;
violation of the Federal Communication Act;
violation of the Texas Criminal Wiretap Act; and
violation of the Texas Wiretap Act.
Meischen asserted that Claimants had unlawfully ended his employment to deflect blame for acts of a former employee of Claimants and to deprive Respondent of bonuses. Meischen sought $1,141,200.00 in compensatory damages plus punitive damages, interest, costs, attorneys' fees, and expungement of the matter from his records.
Motion For Sanctions
On or about September 20, 2012, Respondent Meischen filed a Motion for Sanctions, which Respondents opposed. In a November 16, 2012, Order, the FINRA Arbitration Panel ruled as follows:
a. If, at hearing, Respondent provides evidence of the existence of documents requested and not produced, the Panel will draw an adverse inference as to those matters addressed by the requested documents;
b. Claimants' Motion for Reconsideration is denied.
The FINRA Arbitration Panel denied Claimants' claims.
The Panel found Claimants liable and ordered them to pay to Respondent Meischen $8,092.70 in costs.
Finally, the Panel recommended the expungement from Meischen's January 20, 2012 Uniform Termination Notice For Securities Industry Registration ("Form U5") of the Reason for Termination and accompanying Termination Explanation from Section 3. The Panel recommended that the Reason For Termination be replaced with the explanation of "Voluntary" and that the accompanying explanation be deleted of its commentary and left blank. Further, the Panel recommended the revision from "YES" to "NO" for the answers on Meischen's Form U5 Questions 7B and 7F(1), and the deletion of commentary from the previously filed Disclosure Reporting Pages based upon the defamatory nature of the disclosures.
Internal Review Disclosure
Currently is, or at termination was, the individual under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct?
. . .
Did the individual voluntarily resign from your firm, or was the individual discharged or permitted to resign from your firm, after allegations were made that accused the individual of:
1. violating investment-related statutes, regulations, rules or industry standards of conduct?
2. fraud or the wrongful taking of property?
3. failure to supervise in connection with investment-related statutes, regulations, rules or industry standards of conduct?
Bill Singer's Comment
Sometimes what you start, someone else finishes -- as in this case where Merrill Lynch filed a collections arbitration against Meischen but the former employee seems to have emerged from the ring victorious.
As to Merrill's filing about how Mieschen was purportedly discharged because of some alleged third-party fee and suspicious activity, well that comment may well be deleted via the FINRA Arbitration Panel's recommendation to expunge the "discharge" and denote the termination as a "Voluntary Resignation." Of course, Meischen's may well be haunted for the rest of his life by his knowledge that Merrill Lynch's management sustained a "loss of confidence" with him. Who knows if that painful sting will be assuaged by his arbitration victory. Maybe the award of $8,092.70 in costs will help. (Yup, that's my daily offering of sarcasm).