A set of handwritten notes given to RR by a former Merrill Lynch branch manager shows that the firm may have trained managers on how to sue departing reps and get brokers to incriminate themselves in exit interviews.
The handwritten notes were provided to RR magazine by Alex Lambros, now with Linsco/Private Ledger in Ft. Myers, Fla., who sued Merrill over an alleged 1995 wrongful termination. The case was the subject of a Page 1 story in The Wall Street Journal in March. Lambros lost the NYSE arbitration, lost a court appeal of the decision and has since filed for a court reconsideration of his case.
Lambros claims he made the notes in 1991 or 1992 at a managers' meeting in Tampa, Fla., where Merrill outside attorney Gregory Rubin of Rubin & Associates in Paoli, Pa., instructed managers on how they could sue departing brokers and thereby obtain settlements. Lambros managed Merrill's Cape Coral office at the time.
Rubin developed the temporary restraining order (TRO) strategy for Merrill Lynch over a decade ago. The brokerage has since been the most active in seeking restraining orders against some departing brokers. The orders prevent reps from contacting clients when they leave, typically for a period of 10 days. To obtain TROs, firms must argue that client information is a trade secret and confidential and that transferring clients out will cause irreparable harm to a firm.
But Lambros' notes from the training session read: "settle for 10% [of FC's gross] out of court," and "ML gives us 20% of production," which Lambros recalls may have been the part of the settlement a branch was allowed to keep. Rubin evidently named two reps as examples--one who paid $15,000 to the firm, the other $5,000--and indicated that the firm gets "the most money" in New York City, Philadelphia and Washington, D.C.
To get a TRO, a plaintiff like Merrill must argue that "irreparable harm" will occur without the order--that an award of money can't repair the damage.
However, transcripts in another Merrill case, previously reported on by RR, show that another outside attorney who handles TRO cases for Merrill in Chicago argued before an arbitration panel that the firm typically settles for 25% of a defecting rep's trailing 12 months production.
The NASD itself has released figures showing that broker/dealers settle 96% of these cases.
Lambros says Rubin claimed Merrill argues in court that it, too, loses TRO cases and, therefore, should also be awarded restraining orders. But Lambros claims Rubin admitted that the argument was somewhat hollow since the firm was far more active in seeking TROs. Lambros' notes quote Rubin as saying "ML sues vs. competitors 200 vs. 5."
Merrill managers also were instructed how to obtain evidence against departing reps, Lambros says. His notes read: "412 form with securities typed in (transfer form)." Lambros recalls that managers were instructed to look at incoming transfer forms and see if a client's holdings were already filled in, and if so, the firm then had some proof the rep took copies of customer account information.
Lambros says Merrill managers also were instructed to keep departing brokers in the BOM's office for an exit interview and casually ask if the rep had made copies of his or her book. The intent was to gain an admission that customer information had been taken. While the rep was being given the exit interview, managers were told to have their assistants call Rubin or local counsel to initiate a TRO, Lambros says.
Lambros admits he didn't question the strategy at the time, although he did have some concerns about what the firm was encouraging managers to do. "I was a manager [then], and I didn't want to lose brokers, either," he says.
Meanwhile, Merrill itself encouraged recruits to copy their books. Lambros also supplied this magazine with a June 1997 letter from another former Merrill rep to the NYSE, which complains that a Merrill manager encouraged the broker in 1993 to take his book from Prudential and copy it at night. A July 1993 expense report shows that this same manager submitted over $100 in copying charges to a Merrill expense report. The report identifies the expenses as, "MOVE TO FACILITATE TRANSFER FROM SLB TO MERRILL LYNCH."
Neither Merrill nor Rubin would comment, although Merrill did say in a statement: "This purported document [Lambros' notes] egregiously misrepresents our firm's policies and procedures in protecting client assets and information, and we question its legitimacy."