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Lawsuit against Merrill Edge, BofA targets cross-selling strategies

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A client’s lawsuit is taking aim at Bank of America cross-selling strategies involving Merrill Edge, the company’s self-directed online brokerage offering.

Peter Bakalis, a Merrill Edge client who is also a financial advisor with broker-dealer D.H. Hill Securities, alleges he was promised a lower mortgage rate if he deposited at least $500,000 into a Merrill Edge account, according to the lawsuit, which was filed earlier this month in a federal court in Michigan. Bakalis says he was denied the lower mortgage rate three times, even after he transferred the money, the lawsuit says. In addition, Bakalis claims that Merrill Edge made unauthorized trades on his account.

He is requesting $283,000 in damages, the difference between his original 30-year mortgage rate and the rate he says he was promised at Bank of America, according to the lawsuit. This also includes $4,000 in damages from alleged unauthorized trading that occured on his account, once he had transferred a total of $518,000 to Merrill Edge.

Bakalis’ lawsuit targets Merrill Lynch, Merrill Edge and Bank of America as well as two employees in the bank’s loan office for alleged breach of contract and fraudulent misrepresentation in addition to four other claims.

“We can’t comment on individual clients, but our disclosures make it clear that clients must be eligible to receive discounts under our various programs,” a spokesman at Bank of America said in a statement. In regards to allegations of unauthorized trading: “We deny that and acted appropriately,” the spokesman said.

Bakalis was terminated from his former employer, Sigma Financial, in October, according to his FINRA BrokerCheck record. The firm claims it had “reason to believe that the representative forged, or instructed/caused others to forge, client signatures on account opening and account transfer paperwork,” according to a note from Sigma Financial available on his BrokerCheck record.

In December, the Michigan Department of Insurance and Financial Services said it received a complaint about Bakalis from an undisclosed source “on the appropriateness of annuity surrender/transfer for three different clients,” according to his FINRA BrokerCheck record.

A spokeswoman at the department in Michigan says it does not comment on open investigations. Bakalis’s attorney, Tom Warnicke, did not respond to a request for comment on the investigation or his client’s termination from Sigma Financial.

Bank of America has been building connections between its bank and brokerage channels. The company encourages clients to use its banking and brokerage services, offering them rewards, such as credit card savings, interest rate bonuses and loan discounts. Attorney Warnicke says the incentives for clients creates a conflict of interest. “It muddies the lines a little bit,” he says.

Bakalis had been seeking a better mortgage rate than the 30-year fixed rate of 4.5% he was currently receiving, the lawsuit says. In October 2017, Bank of America offered him a 3.5% rate if Bakalis would move at least $500,000 over to his Merrill Edge account, according to the lawsuit. Bakalis agreed and filed the necessary paperwork, the lawsuit says.

About a month later, loan officer Ubong Akpan allegedly told Bakalis that his application for the loan had been declined, saying that his file contained too much documentation and was taking too long to go through the underwriting process, according to the complaint. Akpan said he would refile the application and that Bank of America would honor the lower mortgage rate, according to the suit.

Bakalis’ application was denied a second time at the end of December 2017. This time he was referred to Kevin Broomhead, senior vice president at Bank of America, who allegedly apologized and sent Bakalis’ application for the new mortgage rate through the underwriting process again, according to the complaint.

At this time, Bakalis transferred around $518,000 to his Merrill Edge account, which was set up at margin, according to the complaint. Bakalis transferred the money because he was led to believe he had already been approved, his attorney says.

“He believes [Akpan and Broomhead] either negligently or intentionally misrepresented facts to him that were necessary for that transaction,” Warnicke says.

Akpan and Broomhead did not respond to requests for comment.

A few days after transferring the money to Merrill Edge, a trading representative at the firm allegedly called Bakalis, notifying him that he had a margin call, according to the lawsuit. He could either overnight money to satisfy the debit or face a forced sell. Bakalis alerted the firm that he had a margin account. The trading representative looked at the paperwork and told Bakalis to disregard the call, according to the complaint.

About a week later, Bakalis saw unauthorized sell orders in his accounts, which he alleges cost him $4,000, according to the lawsuit. After about two months, Bakalis was informed his application for a lower mortgage rate had been declined a third time.

“The reality was there was no issues with my client’s financing that would have prevented the financial arrangement from going forward,” Warnicke says.

By the time the file was denied a third time, mortgage rates had gone up, which kept Bakalis from getting a better deal, Warnicke says.

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