The latest round in an ongoing legal battle between Merrill Lynch and one of its former brokers was reported by AdvisorHub.
John Lahoud, who is now with Rockefeller Capital Management, filed a lawsuit against Merrill Lynch in federal court in New Jersey, alleging that the firm withheld about $1.2 million in deferred compensation following his departure in 2021. This came on the heels of another action last month in which Lahoud filed a motion in New York state court to vacate a FINRA arbitration award ordering him to repay $1.3 million from an outstanding promissory note balance that became due when he made the move to Rockefeller.
In that case, Lahoud contended the arbitrators “exceeded their powers, manifestly disregarded the law, and submitted an irrational award.”
Lahoud joins about 240 other brokers who have filed claims against Merrill Lynch over deferred compensation. A filing in February alleged that Merrill wrongly withheld their deferred compensation when they changed firms, in violation of the Employee Retirement Income Security Act (ERISA) of 1974.
The lead plaintiff, Kelly D. Milligan, spent 21 years with Merrill Lynch and claimed he was forced to relinquish $500,000 in deferred compensation.
Milligan asserted that Merrill Lynch invoked its “Cancellation Rule,” in which he said Merrill mandated that advisors forfeit the compensation in plan accounts if they left the firm before a “vesting” date (a contractually allotted amount of time the employee must be with the company before benefitting from the plans).
The complaint stated that advisors would automatically allocate a portion of their commissions each year to the “WealthChoice Contingent Award Plan.” Those commissions would be allocated into individual plan accounts, which would “vest” within eight years. According to the complaint, at least 5% of an advisor’s pay would be withheld yearly.
Milligan argued the plan was an “employee benefit pension plan” because it resulted in a deferral of employees’ income that extended to that employee’s termination. Therefore, he said it was protected under the Employee Retirement Income Security Act. (ERISA)
But in March, U.S. District Judge Kenneth D. Bell granted Merrill Lynch’s motion to toss the proposed class action case, saying he disagreed with the ex-Merrill advisors’ “interpretation” of ERISA as it applied to the firm’s deferred compensation program.
“ERISA’s ‘definition is not algorithmic’ and its words should not be ‘read as an elastic girdle that can be stretched to cover any content that can conceivably fit within its reach,’” Bell wrote, citing a Fifth Circuit ruling in a separate case. The ex-Merrill advisors’ “expansive interpretation reaches far beyond Congress’ intent and ignores ERISA’s fundamental premise.”
The plaintiffs said in April they would seek to reopen the suit.
In the case of Lahoud, he alleged in his petition that he left Merrill Lynch for Rockefeller because he had been subject to retaliation and defamation by colleagues after he complained about being underpaid by about $7 million.
Those who choose to work in the financial services industry face a range of complex rules and regulations. If you are under investigation by your firm, terminated for cause or considering voluntarily leaving your firm, it is imperative that you hire counsel to advise you properly and protect your record. The attorneys at Lewitas Hyman have years of experience advising both financial advisors and financial firms on various types of employment issues, including deferred compensation. For more information about our financial services employment practice, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
