* FINRA arbitration panel awards $1.6 mln in damages, fees
* Merrill accused of persistent failure to supervise broker
* Third finding against Merrill involving the broker
By Jed Horowitz
NEW YORK, Dec 12 An arbitration panel this week
took the unusual step of rebuking Merrill Lynch's oversight of a
top broker's use of marketing materials and disclosure
documents, and awarded a client $1.6 million in damages,
attorneys' fees and other costs.
In a Dec. 11 ruling, a three-person Financial Industry
Regulatory Authority panel in Seattle wrote that it was spelling
out specific abuses by Merrill and a broker known as Phil Scott
in order to give them "the benefit of the panel's conclusions so
(they) can modify their conduct accordingly."
FINRA panels rarely disclose the reasons for their awards.
The Seattle panel said Scott, whose real name is Walter
Schlaepfer, distributed marketing material containing
misrepresentations and omissions and used a personal investment
advisory questionnaire filled out by brokers as "a disclosure
device," a practice that has the "capacity to deceive."
Merrill, a unit of Bank of America Corp, breached
its own code of duties in inadequately supervising Schlaepfer
and allowing him to use the marketing materials after receiving
notice about them, the panel members wrote.
Barry Lax, a New York-based lawyer who represented
Schlaepfer's client, Clair Couturier, said it was the third
arbitration award of around $1 million he has won against
Merrill since mid-2011 for actions involving the broker.
Schlaepfer was not named as a respondent in the other two
cases, according to FINRA documents. The three cases accused
Schlaepfer of making inappropriate investment recommendations in
the years 2008 and 2009 that led to portfolio losses by the
"We disagree with the panel's decision given the facts
presented in this case," Merrill spokesman Bill Halldin said of
the Seattle decision. "This account was handled properly during
a very difficult time when there was extreme market volatility."
He declined comment on whether Merrill will appeal the
decision but said Schlaepfer has had "a long and distinguished
career as a financial adviser."
Schlaepfer, who remains at Merrill, could not be reached for
comment. He is based in Seattle and under the name Phil Scott
was honored in 2010 as Barron's Number One adviser in the state
of Washington. He was also on the publication's top 1,000 U.S.
financial advisers list this year.
Couturier asserted breach of fiduciary duty, violation of
suitability standards and breach of contract among other claims
against Merrill and the broker in the most recent case. The
arbitration panel awarded him less than half of the $2.5 million
in compensatory damages he requested.
In January, Merrill was ordered by a Detroit-based panel to
pay about $1.2 million to former Boston Red Sox catcher Douglas
Mirabelli and his wife over alleged recommendations made by
Schlaepfer. In May 2011, FINRA arbitrators in New York ordered
Merrill to pay $1.6 million in damages and attorneys' fees to
clients of Schlaepfer.
Another arbitration filed against Merrill and Schlaepfer in
Seattle, which sought unspecified damages, was dismissed by a
FINRA panel in August, 2011.
The latest arbitration decision was reported earlier on
Wednesday by Dow Jones.