A Financial Industry Regulatory Authority arbitration panel has ordered Merrill Lynch to pay $8.1 million in compensatory damages to a family corporation that claimed the firm had breached its fiduciary duty with its investments.
Staton Family Investments Ltd. first filed its claim against Merrill Lynch in December 2008, alleging the illegal seizure and theft of 1.26 million common shares of Duke Realty Corp. Staton Family Investments handles the wealth of Daniel Staton, who earned stock in Duke Realty while serving as its chairman and chief executive officer.
The claim surrounded the handling of Staton Family Investments’ Duke Realty stock and subsequent loans taken against it, said the family corporation’s lawyer Martin Russo, a partner at New York law firm Gusrae, Kaplan, Bruno & Nusbaum PLLC. That included a fiduciary duty to Staton Family Investments, Russo said, with Merrill Lynch’s role as the investment advisor on their collateral account.
Respondents named in the case include Merrill Lynch’s broker dealer subsidiary Merrill Lynch, Pierce, Fenner & Smith Inc., as well as two banks under Merrill Lynch & Co. that also handled the transactions including Merrill Lynch Bank USA and Merrill Lynch Bank and Trust Co. Other respondents also named included individual Merrill Lynch investment advisors and their supervisors.
The conflict addressed by the FINRA panel decision involved certain trigger prices under the terms of the loans that could put the value of Duke Realty’s stock at zero. Staton Family Investments was not adequately made aware of those trigger price terms, Russo said, even as the stock went under the trigger price for a couple of days in October 2008. Around that time, Merrill Lynch requested another $4 million in cash and collateral from Staton Family Investments, according to Russo, though the total owed was actually $23 million. The Staton Family Investments was not made aware of how much the loan was under collateralized under the terms of the loan, Russo said.
The July 21 decision from a Financial Industry Regulatory Authority panel ruled that Merrill Lynch had breached its fiduciary duty and ordered the firm to pay Staton Family Investments $8.1 million. More details about the FINRA panel’s award decision were not disclosed, though the ruling was not unanimous. Of the three-member panel, one arbitrator dissented.
Bank of America-owned Merrill Lynch, which had requested that the FINRA panel dismiss the claims and reimburse the firm for the costs associated with it, denied any wrongdoing related to the case.
“While the panel awarded just a small fraction of the amount sought, we are very surprised that any award was made in light of the facts of this case,” Bank of America spokesman Bill Halldin said. “Merrill Lynch Bank USA acted completely within the parameters of its loan agreement to protect the collateral held during extreme market turbulence in October 2008. We are considering additional action in this matter, including asking a court to overturn this decision.”
Staton Family Investments initially asked for $300 million in compensatory damages, $900 million in treble damages or 1.26 million of Duke Realty shares and $50 million for punitive damages, attorneys’ fees and other costs, as well as other unspecified damages when the claim was first filed in December 2008.
At the close of the hearing, Staton Family Investments requested $14.88 million for lifetime dividend losses, $4.5 million in bond losses, $854,000 in taxes, $327,600 in losses from the sale of the shares and unspecified treble punitive damages.
Those requests came as Staton Family Investments, in addition to breach of fiduciary duty, alleged securities and common law fraud, breach of contract, negligence, negligent misrepresentation and violation of Florida state laws, as well as other violations.
While the FINRA arbitration panel ruled against Merrill Lynch for part of the claims, it denied the Staton Family Investments’ claims against the individual respondents working for Merrill Lynch, including Christopher Dale Jacobs, Margot M. Dwyer, James R. Dickson, Gerald Andres Schwinn Jr. and “The Jacobs Team.” At the same time, the panel also denied the requests from Jacobs, Dickson, Dwyer and Schwinn to have the event erased from their CRD records.
Daniel Staton was ultimately dismissed as a claimant in the case after it was determined he was not personally affected, his lawyer Russo said.
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