Merrill Prevails in Dismissing $30-Mln Stock-Loss Claim from Former Manager
A Finra arbitration panel in Chicago has dismissed a retired Merrill Lynch manager’s claim for more than $30 million over financial crisis-era losses in his company stock and options, ruling that he waited too long to file his claims of fraud against his former employer.
Arbitrators in 12 similar claims from former Merrill managers that are in various stages of hearings have rejected Merrill’s motions to dismiss, said Paul W. Thomas, a lawyer representing the claimants.
Finra’s Arbitrator’s Guide discourages panelists from accepting motions to dismiss before a case is fully argued, and Merrill could cite the rare decision in dozens of other stock-drop employee cases that are in the process of being filed with collective claims of more than $1 billion, lawyers said.
The decision that Finra accepted Monday evening involved a fraud claim by Nicholas McClanahan, whose more than 30-year career at Merrill ended in 2006 after stints that included management duties in Canada and in its private banking and investment group in the Midwest, according to his LinkedIn profile.
In his initial arbitration claim filed in December 2017, McClanahan alleged that his company stock and options “incurred substantial losses as the direct and proximate result of [Merrill’s] fraudulent activities in the residential mortgage-backed securities and collateralized debt-obligation markets” leading up to the financial crisis.
The three-person arbitration panel accepted Merrill’s assertion that the claim was ineligible because it was filed beyond Finra’s six-year time limit following a cause of action. No event or occurrence cited in the claim occurred after December 8, 2011, the award document said.
“The panel just completely missed it,” said Thomas. “They made a bad mistake of the law and the facts.”
Some of McClanahan’s options expired as late as 2014, the lawyer said, and Merrill and the claimant had filed with arbitrators a written agreement signed in April 2018 in which the Bank of America-owned firm agreed to let him pursue attorneys’ fees, sanctions and punitive damages in arbitration.
Thomas said he expects to advise McClanahan to go to court to seek to vacate the award, or potentially to file a new court claim since the arbitrators dismissed the claims “without prejudice.”
Thomas acknowledged the irony of returning to court, since Merrill initially tried to move its former managers’ stock-drop arbitration claims to court and avoid arbitration. It acquiesced to arbitration last April after losing a series of court hearings.
McClanahan amended his statement of claim last year to assert that Merrill “frivolously sued him in federal court to circumvent the customer arbitration agreement and to increase his costs.”
A Merrill spokesman declined to comment on the arbitration panel’s decision to dismiss the case on procedural grounds or on the other cases.
McClanahan did not respond to requests for comment sent to him through a social media site.