A federal judge on Friday gave final approval to a settlement under which Merrill Lynch will pay $21 million to end a class action lawsuit by some 1000 former brokers who claimed they were denied deferred compensation when they left after the brokerage merged with Bank of America.
U.S. District Judge Alison Nathan in Manhattan said she was satisfied with the deal during a 45-minute hearing on Friday to determine whether it was fair.
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The suit, filed in 2010, stems from Merrill's merger with Bank of America in September 2008. At issue are years of deferred compensation, some of which was held in brokers' stock savings plans.
When brokers left the firm after the BofA deal, Merrill denied its former brokers' requests for deferred compensation that is typically paid when a broker stays at a firm for a certain number of years. But brokers can also get the money if they leave for "good reason." Many of the departing Merrill brokers say the merger constituted such a "good reason."
The settlement was designed to help lower-producing brokers who left Merrill after the merger, according to according to Charles (Chip) McCallum III, a lawyer in Vestavia Hills, Alabama who represents the class action brokers.
About $16 million of the funds would be directed to those brokers in the class who had $500,000 or less in revenues in 2008, the year of the merger, and then left within certain periods. The remainder would go to paying legal costs.
The settlement plan has undergone some changes since a $40-million deal was proposed last August. The cash value of the overall settlement shrunk by half after more than 500 brokers left the class. Most settled their cases separately with Merrill, agreeing to the same terms as were in the class action deal approved Friday, according to lawyers involved in the case.
Friday's $20 million deal actually reflects more generous terms for individual brokers than the $40 million version proposed last August. Judge Nathan granted her preliminary approval of the revised terms in December. Merrill and the class action lawyers revised the terms after a Florida-based lawyer who separately represented more than 1000 brokers in individual cases objected to the earlier deal.
Most advisers covered by the settlement are eligible to receive between 40 and 60 percent of their account values, depending on when the left Merrill. Class action lawyers and Merrill sent notices to the former brokers about the proposed settlement in January.
Brokers who started their own legal cases against Merrill but dropped them to participate in the class action will receive 70 percent of the deferred compensation plan's value for their time in the plan through 2008 and 50 percent of the plan's value for 2009. The higher payouts are to compensate them for legal fees and expenses they paid in their prior cases.
The $20-million includes $5.1 million in legal fees for the class action lawyers, which Judge Nathan also approved Friday. Nathan will enter a final written judgment in the case soon, she said.
About 3,300 brokers left Merrill after the BoA deal. It is unclear how many brokers with larger books of business and not eligible for the deal may still be battling against Merrill privately against the firm in arbitration cases.
A Financial Industry Regulatory Authority arbitration panel last year, ordered Merrill to pay $10.2 million to two former brokers who alleged the firm fraudulently denied the brokers' deferred compensation.
The case is Scott Chambers et al v. Merrill Lynch & Co., Inc., et al, U.S. District Court for the Southern District of New York, No. 10-cv-7109.
(Reporting by Suzanne Barlyn; Editing by Linda Stern and Andrew Hay)