Good Intentions Pave Merrill Lynch Stockbroker's Retirement Highway to Hell

March 15, 2019

Two veteran, female Wall Street stockbrokers worked at UBS before joining Merrill Lynch. Maybe they knew each other at UBS, maybe not. In any event, at Merrill Lynch, one of the stockbrokers came up with the idea of pooling their clients and working a common book of business. The intention of forming a team seems to have been to foster a working relationship in contemplation of the retirement of one of the stockbrokers. As far as intentions go, that seems like a good one. The thing about good intentions, however, is that they are the paving stones for the road to hell -- or, as this mess would prove, a highway to hell.

Case In Point

In a FINRA Arbitration Statement of Claim filed in December 2016, associated person Guttmann asserted breach of contract against associated person Respondent Mulcahy. As characterized in the FINRA Arbitration Decision:

[T]he cause of action related to Claimant's allegation that Respondent suggested they form a partnership and pool their respective clients, with the intention of Respondent transferring her book of business to Claimant in or about 2015. Claimant further alleged that, in early March 2016, Respondent announced that she would neither retire nor transition her clients to Claimant or their brokerage team and, as a result, Claimant suffered losses.

Claimant Guttmann sought $4,575,000 in lost profit damages, or, alternatively, $421,780 in net pre-tax compensation purporting to represent monies/commissions paid to Respondent Mulcahy pursuant to the agreement to sell Respondent's book of business to Claimant plus $76,990 in expenses incurred by Claimant's servicing of Respondent's clients. In the Matter of the Arbitration Between Monica Jill Guttmann, Claimant, v. Patricia Mary Mulcahy, Respondent (FINRA Arbitration Decision 17-00030, March 6, 2019) http://www.finra.org/sites/default/files/aao_documents/17-00030.pdf

Respondent Mulcahy generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting unjust enrichment.

Everyone Into the Pool

Frankly, the FINRA Arbitration Decision could have presented the underlying facts with more clarity. For example, consider this:

Respondent suggested they form a partnership and pool their respective clients, with the intention of Respondent transferring her book of business to Claimant in or about 2015. . .

Unclear in the above statement is whether Respondent Mulcahy had suggested "in or about 2015" the partnership and pooling; or, whether that roundabout date was when Mulcahy had planned to retire. Consequently, we're never quite sure as to when the team begin production or the date(s) when Mulcahy had initially indicated she planned to retire.

Everyone Out of the Pool

The FINRA Arbitration Decision's imprecise presentation of the underlying facts proves perplexing when we come across this statement:

in early March 2016, Respondent announced that she would neither retire nor transition her clients to Claimant or their brokerage team and, as a result, Claimant suffered losses

If Mulcahy had planned to retire "in or about 2015," then the "early March 2016" announcement would suggest that she had delayed pulling the retirement trigger. If Mulcahy had merely proposed the team set-up in the roundabout 2015 timeframe, then her "early March 2016" announcement wasn't so much a breach of any agreement as it was her decision not to retire as planned -- and hence, the contemplated transition of her book of business to Guttmann was either going to be delayed or deferred until circumstances altered.

Highway To Hell

Apparently, Mulcahy's "early March 2016" announcement calling off her retirement and backing out of the plan to transition clients to Guttman and/or their team. I still can't figure out whether the two stockbrokers set up a team but never populated that partnership with joint clients, or whether the team ever rolled out, or just what the hell did happened after Mulcahy proposed the team idea but before she called it all off. Notwithstanding the murkiness of all that went on before, the FINRA Arbitration Decision explains that Respondent Mulcahy claimed that::

[M]errill Lynch Pierce Fenner & Smith, Inc. unilaterally dissolved their brokerage team, resulting in Claimant receiving the right to service approximately 75 households and $70 million in assets that were brought to the brokerage team by Respondent.

You can't unilaterally dissolve a brokerage team unless one existed. Consequently, it appears that, in fact, Mulcahy and Guttman had actually formed a team with Merrill Lynch's blessing. We just don't know when that relationship started and we don't know why Merrill Lynch allegedly dissolved it. Of course, since this whole dispute is over a proposed team and the proposed transition of clients to that team, those omissions are glaring.

Award

The FINRA Arbitration Panel found Respondent Mulcahy liable and ordered her to pay to Claimant Guttmann $300,000 in compensatory damages.

FINRA and/or the Panel assessed the following fees:

Claimant Guttman: $2,000 Initial Claim Filing Fee; $700 Adjournment Fee;

Respondent Mulcahy: $1,575 Counterclaim Filing Fee; $700 Adjournment Fee; $200 Discovery-Related Motion Fee; $18,200 Hearing Session Fees

FINRA Member Firm Merrill Lynch Pierce Fenner & Smith: $3,025 Member Surcharge; $6,175 Member Process Fee

Bill Singer's Comment

By way of further background, online FINRA BrokerCheck records as of March 13, 2019, disclose that

Claimant Guttman as first registered in 1987, was registered with UBS Financial Services, Inc. from 1990 to 2011, and in 2011 was registered with Merrill Lynch.
Respondent Mulcahy as first registered in 1988, was registered with UBS Financial Services, Inc. from 2002 to 2011, and by 2011 was registered with Merrill Lynch.

This FINRA Arbitration Decision is disjointed and lacking in sufficient content and context so as to present the underlying dispute in a cogent fashion. Since the only cause of action was breach of contract, it appears that the arbitrators found that Respondent Mulcahy had breached the agreement to form a team and merge customers. In that case, I would have liked to at least know the date when the contract began, what its basic terms were, and when (or whether) there was a target date for Mulcahy's retirement. Similarly, since Mulcahy's defense involved her allegation that Merrill Lynch unilaterally dissolved her partnership with Guttmann, the FINRA Arbitration Panel should have at least cursorily addressed whether Merrill Lynch had dissolved the team and why that dissolution did not provide a defense against Claimant's claim of breach of contract. No . . . I am NOT saying that Merrill's alleged dissolution of the team should have constituted a defense, but I am saying that the arbitrators should have addressed the issue.

After reading what I thought was a unanimous decision (because there was no indication to the contrary ), it turns out that one of the three FINRA Arbitrators (one of the two Public Arbitrators) had only concurred in part and dissented in part. That disclosure should have been made somewhere in the body of the Decision and not as an after-thought in the signature section. Most readers of the Decision will likely never realize that it is merely a majority decision in terms of the Award. The Dissenting Public Arbitrator states that: