FINRA Fines Merrill Lynch $1,000,000 Based on GKN’s Success in NY Court Regarding Arbitration

FINRA fined Merrill Lynch, Pierce, Fenner & Smith $1 Million for failure to arbitrate disputes with employees relating to retention bonuses, an investigation that was triggered by two of GKN’s successful cases on behalf of registered representatives defending against Merrill’s claims in New York State Supreme Court in Manhattan. In GKN’s cases, a Merrill non-registered affiliate brought suits in New York State court to collect the outstanding loans, using an expedited procedure allowed for under New York practice that bars counterclaims.  GKN objected on procedural grounds, arguing that the case was an attempt by Merrill to circumvent FINRA arbitration rules, which requires disputes between firms and associated persons to be arbitrated if they arise out of either of their business activities.  In both of GKN’s cases, the courts compelled arbitration, GKN’s cases being the only ones where the defense GKN had asserted against this Merrill collection program were successful.  One of the cases, Merrill Lynch Int’l Finance v. Donaldson, is published at 27 Misc.3d 391, 895 N.Y.S.2d 698 (Sup. Ct. New York County 2010).  FINRA’s press release is found at http://www.finra.org/Newsroom/NewsReleases/2012/P125455.