Merrill Lynch Hoisted On Its Own FINRA Promissory Note Arbitration Petard

May 13, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2010, Claimant Merrill Lynch asserted numerous causes of action, including, breach of contract, misappropriation of trade secrets, conversion of confidential business information, unfair competition, and unjust enrichment. In the Matter of the Arbitration Between Merrill Lynch, Pierce, Fenner & Smith Incorporated, Claimant, vs. Robert Connell, Respondent (FINRA Arbitration 10-03486, May 6, 2011).

Claimant Merrill Lynch sought a Permanent Injunction enjoining Respondent Connell from using client contact information and other data, and destroying certain records and documents purportedly in his possession. Claimant also sought an Order for the return of certain cited documents, particularly data stored on computers and storage devices. In addition to unspecified compensatory damages and attorneys' fees, Claimant sought payment of an outstanding Promissory Note executed by Respondent in the amount of at least $3.285 million plus interest accumulating at the rate of $220.52 per day since July 27, 2010.

Respondent generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim in which, among other causes of action, he asserted breach of contract, fraud in the inducement, defamation, and tortious interference with contracts and/or business relationships.

In his Counterclaim, Respondent requested $3.2 million in transition compensation; $950,000 that represented the first-year back-end compensation; and $4.6 million in back-end compensation that would have been due during years two through five; $26 million in lost commission for the next 14 years of intended employment. Moreover, Respondent sought interest on all amounts, expungement of his Form U5, punitive damages, attorneys' fee, and costs.

On August 26, 2010, the FINRA Arbitration Panel entered a Permanent Injunction in favor of Claimant Merrill Lynch as against Respondent Connell. 

In an Order dated January 10, 2011, the FINRA Panel ordered that Claimant Merrill Lynch may retain not more than $1,200,000.00 in cash in Respondent's account(s); ant the identity of the remaining $2,550,000 in assets withheld by Claimant will be determined by Claimant after consultation with Respondent's counsel. In an Order dated November 19, 2010, the Panel ordered, in part, that Claimant release all funds in its accounts in excess of the aforementioned $3,750,000. 

The Decision

The FINRA Arbitration Panel denied Claimant Merrill Lynch's claims. and denied Respondent Connell's requested expungement.

However, the Panel wasn't done - not by a long shot.

The Panel found Claimant Merrill Lynch liable to and ordered it to pay to Respondent Connell:
  • $476,500 in compensatory damages
  • $288,734 in attorneys' fees pursuant to the parties' contractual agreements
  • $22,408.67 in costs.
The August 26, 2010 Permanent Injunction was modified as follows:

(a) Claimant shall deliver to Respondent within thirty (30) calendar days from the date of this award, the "Connell Proprietary Excel Spreadsheet and MS Word templates" without any data. 

(b) Upon delivery of the "Connell Proprietary Excel Spread Sheets and MS Word templates" without any data to Respondent, Claimant shall cease using the "Connell Proprietary Excel Spreadsheet and MS Word template" and provide to Respondent a certification signed by an authorized representative of Claimant that it has removed the "Connell Proprietary Excel Spreadsheet and MS Word template" from all Claimant's computers and portable electronic storage devices. 

(c) Within ten (10) business days from the date of this award. Claimant shall deliver to Respondent his personal computer(s) and any and all portable electronic devices with all data removed on the computer(s) and removed on all portable electronic devices, including, but not limited to: 
(1) SanDisk Cruzer, serial number: 173801143142BF50 
(2) SanDisk Enterprise, serial number: OE104A7151C288D9 
(3) SanDisk Cruzer, serial number: 3954011618C1AE35 
(4) SanDisk Enterprise, serial number: 1078920759E33A9E 

(d) The restrictions on Respondenfs personal account(s) with Claimant are stricken. Respondent is entitled to retain the $3,285,228.26 paid by Claimant to Respondent. 

(e) Except as amended herein, the balance of the Permanent Injunction shall remain in effect.