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Merrill Hit With Delayed Discovery Sanctions in FINRA Customer Arbitration
Written: July 1, 2011

In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in December 2009, Claimants asserted causes of action including unsuitability, fraud, failure to supervise, and negligence in connection with transactions relating to the Merrill Lynch Phil Scott Team Income Portfolio. As a result of what is characterized in the FINRA Decision as “Respondent’s reprehensible, egregious and fraudulent conduct relating to Claimants’ investments,” Claimants requested $1.7 million in compensatory damages plus interest, punitive damages, and other relief. In the Matter of the FINRA Arbitration Between John J. Baker, Natalie N. Baker, and Harriet B. Baker, Claimants vs. Merrill Lynch,Pierce, Fenner & Smith, Incorporated, Respondent, (FINRA Arbitration 09-06762, June 23, 2011)

Respondent Merrill Lynch generally denied the allegations and asserted various affirmative defenses.

Untimely Discovery Compliance

At the hearing. Claimants made a Motion for Sanctions, Respondent objected, but the FINRA Arbitration Panel granted the motion.  It appears that, in part, the Panel deemed Respondent Merrill Lynch to have undertaken “untimely compliance with the Panel’s orders to compel the production of documents.”

SIDE BAR: FINRA Arbitration Panels finally seem to be awakening to the gamesmanship of foot-dragging during discovery. See, FINRA Arbitration Respondent Hit With Punitive Damages and Discovery Sanctions (“Street Sweeper” June 29, 2011)

AWARD

The FINRA Arbitration Panel found Respondent Merrill Lynch liable and ordered it to pay to the Claimants $880,000 in compensatory damages.  Respondent was also ordered to pay $34,800 in hearing fees.

SIDE BAR: According to Claimants’ law firm, Lax & Neville LLP:

[T]he Merrill Lynch Phil Scott Team recommended that 100% of Claimants’ assets be invested in the Merrill Lynch Phil Scott Team Income Portfolio, which consisted of 100% equities. In doing so, the Merrill Lynch Phil Scott Team ignored the Claimants’ individual risk tolerances and investment objectives. Even more egregious is the fact that the Merrill Lynch Phil Scott Team recommended that a 90 year old widow in very poor health invest in the 100% equities Merrill Lynch Phil Scott Team Income Portfolio. . .


 
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