Fired Merrill Broker Wins $3.75 Million Defamation Award
(Updated Nov. 7, 2019, with comments from broker’s lawyer in eighth and ninth paragraphs.)
A Minnesota broker who Merrill Lynch fired shortly before his business partner pled guilty to bank fraud was awarded $3.75 million on Monday, along with expungement of what a Finra panel ruled were defamatory regulatory records.
It also recommended that Finra expunge from Central Registration Depository records Merrill’s notice that it discharged Rathmanner for conduct related to unauthorized “representations on behalf of the firm.” Merrill lawyers had argued that the broker abetted his partner’s crime.
“The Panel recommends expungement based on the defamatory nature of the information,” the Minneapolis-based arbitrators wrote in an award document posted on Finra’s dispute resolution site on Tuesday.
Rathmanner, who since May 2017 has been an adviser with Oak Ridge Financial Services Group in Golden Valley, Minn., did not return requests for comment on the award or how it correlates with the damages he requested. The arbitrators denied his claim for attorneys’ fees and punitive damages.
Rathmanner’s partner Jeffrey T. Kluge is serving a prison term of at least five years for borrowing millions of dollars based on doctored statements about his account holdings at Merrill Lynch. Kluge concealed from two Minnesota community banks that he used the same collateral for the lines of credit each gave him, and that the assets also backed loans he received from Merrill, according to his plea agreement.
The broker, who has been barred from the securities industry by Finra and the Securities and Exchange Commission, also agreed in April 2017 to repay $8.7 million to the banks.
Merrill argued that it was acting responsibly in dismissing his business partner, said people familiar with its stance.
Brooke Anthony, a Minneapolis lawyer who represented Rathmanner, said her client had “no involvement” in Kluge’s crime and decried Merrill’s use of the U5 to defame him. “It’s a pretty severe weapon for firms to use against brokers,” she said. “It’s a lifetime report card, and it’s important to have it reflect the accurate situation.”
The damage award was within the range lawyers sought, she said, though winning punitive damages and attorneys’ fees would have been encouraging signs for brokers worried about the expense of seeking expungements.
In his October 2018 arbitration claim, Rathmanner cited several theories of defamation, libel and wrongful termination based on “false and defamatory statements” Merrill put on his U5 termination form.
The arbitrators did not say how much he requested at the close of the nine hearing sessions conducted in October.
In addition to recommending that Rathmanner seek court approval to expunge the reason for termination on the U5 Merrill filed in April 2017, the arbitrators also said he should seek removal of a reference to criminal activity reference on the document and on a U4 notification from Oak Ridge Financial in April 2018.
A Merrill Lynch spokesman declined to comment.