by Brian Mahany
Walter Schlaepper (a/k/a Phil Scott) has been a broker with Merrill Lynch since he received his general securities license back in 1984. Apparently he has built quite a book of business. Along the way, however, he picked up some complaints. One of those complaints was from former Boston Red Sox world series winner Doug Mirabelli.
Last week an arbitration panel appointed by the Financial Industry Regulatory Authority (FINRA) awarded Mirabelli over $800,000 plus interest plus almost $400,000 in attorney’s fees after Mirabelli accused Merrill Lynch and Scott of misrepresentation, negligence, breach of fiduciary duty and inappropriate investment advice. That a stockbroker sometimes loses a case is not newsworthy. What is of interest, however, is that this is the second huge case lost by Scott and Merrill Lynch doesn’t think it should pay.
Although most industry watchdogs give FINRA high marks for their arbitration process, customers like Mirabelli don’t usually have a choice in how they must pursue a claim. Invariably, brokerage firms insert an arbitration clause in all new customer agreements meaning that you and I are forced to ask FINRA to settle any disputes we may have with our broker. We can’t sue and arbitration awards are usually final. In other words, the customer gives up his right to have a jury hear the case and gives up the right to appeal the decision.
Brokerage firm developed the arbitration system and usually there is one industry representative on the three person panels that hear the case. Over 99% of all brokerage firms require customers to arbitrate their claims. Why then should Merrill not pay if they don’t like the decision? Good question, especially since they were the ones who wanted arbitration.
Scott was accused of misrepresentation once before in another million dollar case back in 2010. In that dispute, a different FINRA arbitration panel awarded Scott’s then customer $880,000. Merrill Lynch’s response back then? Once again they said they did nothing wrong. In that case, they attempted to not pay and vacate the award!
It’s too early to tell what they will do this time but once again they are making similar noises according to a published report.
Most brokerage firms quickly pay any award against them. Refusal to pay an award could mean the stockbroker and brokerage firm could lose their license. A court has authority to convert the award into a judgment as well giving the customer additional collection remedies.
Hopefully Merrill Lynch will do the right thing an honor the award. Refusing to pay sends the wrong message to the investing public and does nothing to inspire confidence in Merrill Lynch.
If you have lost money because of a misrepresentation or poor advice, you may have a claim against your broker or investment adviser. In many instances, stockbroker fraud cases are handled on a contingent fee basis.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota.