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Wachovia Self-Dealing Suit; Merrill Fined for Firing Rep

Wachovia Self-Dealing Suit:

Wachovia Bank has been named in a potential class-action suit, filed in Philadelphia District Court in June by 25-year-old Ralph Brooks, Jr. The suit charges the firm with self-interested dealing in regard to two discretionary trust accounts. The accounts were created in 1990, two years after a bullet crippled a six-year-old Brooks. The lawsuit alleges Wachovia eventually put the money in its proprietary Evergreen Funds, with higher fees — despite better and cheaper funds being available. It also alleges “double-dipping,” charging fees for managing the trust accounts on top of collecting the mutual fund and administrative fees.

Merrill Fined for Firing Rep:

Deborah Galarneau, a 57-year-old Merrill Lynch broker in Portland, Maine, who was fired in January 2004, was awarded $3 million in U.S. federal court for her trouble. The firm fired Galarneau for allegedly making inappropriate and unauthorized bond trades. Galarneau sued the firm for defamation after she was unable to get another job. Her lawyers, in preparing for the case, discovered letters from Merrill's attorneys that suggested Galarneau had, in fact, done no wrong. The jury awarded her $850,000 for defamation and $2.1 million in punitive damages. Merrill Lynch plans to appeal.

LPL: On the Prowl?

It's been nearly 10 months since LPL sold a majority stake to two private equity firms. The deal, which valued LPL at about $2.5 billion, is seen by many as an interim step to going public.

But LPL wants to expand its rep force and revenue first, say recruiters and analysts. “To do an IPO, you want to come out of the box as a large-cap company and [LPL] can't do that right now,” says Chip Roame, managing principal of Tiburon Strategic Advisors.

Mitch Vigeveno, president and CEO of Turning Point, a consulting firm in Safety Harbor, Fla., says LPL is probably looking to increase its advisor force to about 10,000 from its current 6,750 before an IPO. LPL has added 250 advisors in the past six months, plus 700 last year.

Some say the rapid cash influx from its private equity sale would allow LPL to acquire a competing independent broker/dealer. High-quality reps and firms with at least 1,000 advisors will be the target, according to Roame. He mentions Lincoln Financial Advisors as a possible target. Vigeveno also says there's been word of LPL's plan to acquire Omaha, Neb.-based Securities America, which has over 1,800 advisors. Securities America denies the claim and says there is no talk of a sale to any firm.

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