Merrill Gets Tough in Pennsylvania

For the past year, Merrill Lynch has sued several defecting Pennsylvania reps and has convinced one arbitration panel to bar one of the brokers from contacting clients for a full year.Former Merrill rep Jennifer Maruca was enjoined by an NASD arbitration panel in February and prohibited from contacting clients through Dec. 7, 1999. She was only allowed to contact family members and five customers

For the past year, Merrill Lynch has sued several defecting Pennsylvania reps and has convinced one arbitration panel to bar one of the brokers from contacting clients for a full year.

Former Merrill rep Jennifer Maruca was enjoined by an NASD arbitration panel in February and prohibited from contacting clients through Dec. 7, 1999. She was only allowed to contact family members and five customers who responded to a mailing, according to the arbitration award. Merrill's claim for damages was denied.

Maruca joined Merrill straight out of college in May 1994. She left Merrill's Camp Hill, Pa., office on Dec. 4, 1998, a Friday, for Salomon Smith Barney's Bala Cynwyd branch. Merrill got a temporary restraining order (TRO) the following Monday, and a few days later was granted a preliminary injunction preventing Maruca from soliciting Merrill clients.

The successful move against Maruca is apparently an attempt by Merrill to stem broker defections. Maruca was a low producer--and in fact was close to being fired.

In 1998, she grossed just $141,000 on $13 million in assets, according to a court affidavit filed by her former manager at Merrill, Frederick DePalma. DePalma had put her on a two-month probation about a month prior to her departure. Thomas Philips, the resident vice president of the Central Penn Complex (a region that includes seven offices), had wanted to fire her.

RR's search of records at the U.S. District Court for the Middle District of Pennsylvania in Scranton shows that a total of five Merrill brokers in the complex got TRO'd between August 1998 and January 1999. When Maruca left, she was the fourth broker to leave in four months and the third to go to SSB. Only one of the departing reps worked at the same Camp Hill office. Three of the brokers had production that ranged from $220,000 to $341,000, but one was a two-year broker with gross of just $106,000 on $9.1 million in assets.

Previously, Merrill had filed only two other TRO cases in the past five years in that court--one in 1994 and another in 1997.

The campaign might have been directed at SSB. "Ask Smith Barney how many brokers they've taken in central Pennsylvania since that one-year injunction," says Merrill's external TRO counsel, Greg Rubin of Paoli, Pa., predicting, correctly, that SSB wouldn't answer the question.

A SSB spokesperson says, "The only comment we have for you is that it was a unique case, with unique facts, and Salomon Smith Barney and [Maruca] are putting it behind us and moving forward."

A check of court documents in late May showed that no new Merrill TRO cases had been filed since January.

The other four cases settled fairly quickly. So why did the firm pursue Maruca?

Merrill spokesperson Bill Halldin suggests that "it takes two to settle," and Rubin would say only that "maybe" Maruca wasn't willing to settle on the same terms as the others.

In the arbitration hearing, Maruca claimed that Merrill got tough in order to dissuade her from filing a discrimination claim. Neither Merrill nor Maruca would comment on whether such a claim has been filed.

One of the other four brokers who was TRO'd (and who requested anonymity) says that "Merrill is being hard-assed and playing hardball across the board to send a message to anyone who might be considering leaving." The fact that Maruca has to step down for a year is "absurd ... a crime. The poor girl is obviously no big hitter, and they're crushing her," he says.

Central Pennsylvania isn't the only area where Merrill Lynch has used multiple TROs to stop broker defections.

Within the past two years, Merrill has sued at least seven Knoxville, Tenn., brokers who left the firm. According to complaints filed between September 1997 and January 1999 by Merrill in federal court in Knoxville, the brokers were $200,000 to $300,000 producers, except for one $880,000 veteran and a trainee who had accounts producing $143,000.

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