WealthManagement Magazine

Investor Suit Against Merrill Dismissed by Court

A state court judge in late August dismissed a proposed class-action lawsuit accusing two managers and eight brokers at Merrill Lynch's main Baltimore office of cheating investors.Judge Joseph H.H. Kaplan did not say why he dismissed the complaint.The ruling is a victory for Merrill Lynch, which argued that the complaint filed by 11 of its clients did not qualify as a class-action suit.Instead, the

A state court judge in late August dismissed a proposed class-action lawsuit accusing two managers and eight brokers at Merrill Lynch's main Baltimore office of cheating investors.

Judge Joseph H.H. Kaplan did not say why he dismissed the complaint.

The ruling is a victory for Merrill Lynch, which argued that the complaint filed by 11 of its clients did not qualify as a class-action suit.

Instead, the firm's lawyers claimed the suit was a "hodgepodge" of individual grievances. Previously, Merrill said it expected the suit to be dismissed and that the complaints would be heard in "an appropriate industry forum."

The judge's ruling doesn't let Merrill off the hook, says Alfred Scanlan Jr., a lawyer with the Baltimore firm Scanlan Rosen & Shar, who represents the plaintiffs. "We have every confidence that the arbitration panel or panels will be able to look at the facts of these cases and do the right thing on behalf of the plaintiffs."

The amended complaint, filed in June in the Circuit Court for Baltimore City, accused Merrill and two of its managers, Gregory Franks and Lawrence Hufty, of setting out in early 1994 to cheat the firm's customers. They recruited brokers to find "vulnerable, unsophisticated clients." The eight Merrill brokers named in the complaint allegedly then churned accounts, made misleading sales pitches and walked off with huge commissions, according to allegations made in court records.

In one case, Merrill broker Jeff Farley allegedly made $13.4 million in trades in the accounts of widow Ada Mae Zeiler, even though her accounts had a total value of only $650,000 in early 1995. By December 1996, her accounts were said to be worth only $616,125, despite a raging bull market. During that time, Zeiler paid $33,075 in margin interest and $147,106 in gross commissions, according to the plaintiffs' complaint.

Merrill officials declined comment. Hufty, vice president and administrative manager at Merrill's Baltimore office, no longer works for the firm. Several brokers named in the case also have left. Franks was still the Baltimore branch's resident vice president in late August.

A class-action suit is one strategy in getting industry complaints into court; arbitration panels cannot hear class claims. Since court documents and proceedings are public, some lawyers say class-action lawsuits are the best way to pressure firms to settle quickly.

"You are seeing more and more attempts to try cases in the press to embarrass the major brokerage firms," says Bill Singer, partner in the New York firm Singer Zamansky.

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