Due Diligence

Merrill Brokers Win $1.167 ML Arb Award For Retained Comp

Two former Merrill brokers won $1.167 million from Merrill Lynch for deferred compensation benefits that were supposed to be paid out when they left the firm after control changed hands with the Bank of America takover in late 2008. It's the first case nationally of its kind for Merrill brokers.

Under Merrill's various deferred comp plans (including FACAAP, LTICP, Growth Award, Wealthbuilder) if a broker resigned for “Good Reason”--as defined in the plans-- Merrill Lynch was required to immediately vest and pay the awards to its departed brokers in cash, , according to a release from their attorney, Michael Taaffe, Esq. with Shumaker, Loop & Kendrick, LLP.

Instead, Merrill held on dearly, says Taaffe. That's because plan documents showed such awards had to vest around $37 per share, he says. At the time of the BofA deal, Merrill stock was trading much lower. Estimates of the value of MER stock and cash that were retained by Merrill Lynch that should have vested to brokers resigning for “Good Reason” range from $100 to $300 million.

From a press release issued by Shumaker, Loop & Kendrick:

"Merrill Lynch and Bank of America realized this was a major problem. The firms attempted to limit their risk by making brokers waive any rights to 'Good Reason' resignation following a change of control in the Retention Agreement that was offered to many Merrill brokers during November 2008.

Brokers were placed in a very difficult position during this time. If they agreed to the Retention, brokers would waive their right to “Good Reason” vesting following the change of control. If they did not agree to the Retention, they would be removed from the highly-beneficial account redistribution list. Making the decision more difficult to brokers, Merrill Lynch delayed the release of the new 2009 compensation plan, which was detrimental to most brokers producing revenue less than $600,000 per year, until after the deadline for signing the Retention.

Based upon the activity undertaken by Merrill Lynch managers to force brokers to sign the Retention Agreement and waive their rights to “Good Reason” vesting, including threats of removal from the account redistribution list if the Retention Agreement was not executed, even brokers who signed the Retention Agreement may have a cause of action for vesting under the plans.

Many brokers resigned for “Good Reason” following the announcement of the change in control of Merrill Lynch on September 15, 2008 due to some detrimental impact to their status, position, compensation, benefits or fringe benefits. However, Merrill Lynch cancelled each broker’s deferred holdings and refused to pay out any funds for “Good Reason” resignation. Estimates of the value of MER stock and cash that have been retained by Merrill Lynch that should have vested to brokers resigning for “Good Reason” range from $100 to $300 million and were a windfall to Merrill Lynch and Bank of America."

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