Merrill Lynch is expected to head into a New York court Friday and hammer out a settlement that could potentially affect the deferred compensation of thousands of financial advisors that have left the firm since its 2008 combination with Bank of America.
The coming settlement stems from class action case initiated in November 2009 by two former Merrill Lynch brokers in Alabama that was subsequently moved to New York federal court. The case focuses on whether a change in control of the firm resulted in the vesting of the advisors' stock.
A settlement could possibly impact up to approximately 3,300 to 3,500 advisors who have left Merrill Lynch since that 2008 time frame. The terms of any settlement would disclose which classes of those advisors could seek reimbursement.
Merrill Lynch disclosed that it was moving toward the settlement in a regulatory filing with the Securities and Exchange Commission earlier this month.
"On August 10, 2012, the parties reached an agreement in principle to settle the action," The filing states. "The agreement in principle is subject to preliminary and final approval of the Court. The settlement amount has been fully accrued."
Bank of America Merrill Lynch spokesman Bill Halldin confirmed that there is a hearing scheduled for Friday.
"We have agreed to a resolution to avoid the cost and distraction of what would likely be continued, lengthy litigation," Halldin said. "Details of the settlement have not yet been presented to the court, and it would be premature to comment on the details until then."
A lawyer for the two brokers, Scott Chambers and John Burnette, was not immediately available for comment.
The decision to move toward a settlement follows a separate arbitration decision that awarded $10.2 million to two advisors regarding the same compensation issue in April. Following that decision, the Wall Street Journal reported in May that Bank of America was in talks with lawyers representing its former advisors for a settlement that could reach "hundreds of millions of dollars."
Michael Taaffe, a partner at law firm Shumaker Loop & Kendrick LLP, who represents more than 1,000 former Merrill Lynch advisors affected by the litigation, said a settlement could provide a way for Merrill Lynch to limit its liability going forward.
In addition to representing the claimants who received the $10.2 million award, Taaffe filed the first arbitration tied to the deferred compensation issue in April 2009, he says, on behalf of two financial who had left Merrill Lynch. That first arbitration resulted in $1.17 million in compensatory damages for the claimants.
Any settlement announced this week would then have to be approved by the court, and those affected could potentially opt out and pursue their rights in arbitration. There are currently hundreds of ongoing arbitrations tied to this matter, Taaffe said.
