A Financial Industry Regulatory Authority panel in San Juan, Puerto Rico, ordered Merrill Lynch to pay ex-Major League Baseball outfielder Angel Pagán and his wife, Windy Pagán, more than $2 million after a rep at the firm invested the couple’s money in unsuitable Puerto Rico municipal bonds and closed-end bond funds.
In its decision, published by FINRA on its website Tuesday, the three-person FINRA panel decided that Merrill was liable for $1.7 million in compensatory damages; interest on that sum at the rate of 4.5% for each year from June 20, 2017; $88,758 in costs; and $750 for the reimbursement of the non-refundable portion of the filing fee.
Merrill provided a brief statement Wednesday, saying only it was “disappointed with the panel’s decision.”
The Pagáns, on the other hand, were “thrilled with the decision — the largest award against Merrill Lynch Puerto Rico to date — because the Arbitrators awarded virtually all of their losses,” Lloyd R. Schwed, a partner at the law firm Schwed Kahle & Kress in Palm Beach Gardens, Florida, who represented the claimants, told ThinkAdvisor by email Wednesday. A FINRA spokeswoman confirmed that it was indeed the largest award against Merrill in Puerto Rico to date.
“They trusted Merrill Lynch and their close Financial Advisor so this award has restored their trust in the system,” Schwed said.
Although the panel denied the claimants’ request for $6 million in punitive damages, Schwed said: “FINRA Arbitrators award punitive damages in less than 5% of the cases that go to final award so the absence of punitive damages did not surprise us. But the Arbitrators clearly wanted to send a message to Merrill Lynch by awarding virtually all of the Pagáns’ net losses.” Schwed had reduced the amount of money in punitive damages being sought to $500,000 in his closing before the panel, he said.
The full award will end up totaling $2.1 million after combining the damages, $201,231 in interest and the costs and fees, he went on to say, adding that the Pagáns’ net losses were $2.048 million.
The claimants had accused Merrill of “breach of fiduciary duty; gross negligence and breach of the duty of due care; breach of contract and the covenant of good faith and fair dealing; violations of Puerto Rico and state securities laws; common law fraud and deceit; failure to supervise; control person liability; respondeat superior; and violation of FINRA and securities industry rules and standards of conduct,” according to the FINRA panel award statement.
The Pagáns requested compensatory damages “in excess of” $2 million, “plus the growth and income that would have been generated on Claimants’ principal if the money had been properly invested,” according to the award statement.
Angel Pagán last played for the San Francisco Giants, starting in 2012 and retiring after the 2016 season. He previously played for the Chicago Cubs and New York Mets.
The Merrill rep who served as the Pagáns advisor, Alex Gierbolini, was not a party in the dispute, but was named in the award statement. In addition to requesting that the claim be denied with prejudice and all costs associated with the case be assessed against the Pagáns, the firm had requested that all references to the arbitration be expunged from Gierbolini’s records. All those requests were denied by the panel.
Gierbolini has worked at Merrill since 2012, according to his profile at FINRA’s BrokerCheck website. There are 24 disclosures listed there, all of them customer disputes. The first one was closed with no action, there were settlements in 17 and the remaining six were still pending.
Schwed claimed Gierbolini continued investing in large amounts of the Puerto Rican bonds on behalf of the Pagáns, despite knowing they were “junk,” according to a transcript of Schwed’s closing before the panel that he provided to ThinkAdvisor.
Merrill is hardly the first firm to run into trouble with the collapse of Puerto Rico bonds. A regulatory panel last year said Morgan Stanley must pay Puerto Rican bond investors $3.3 million. Also last year, UBS, where Gierbolini worked prior to Merrill, was ordered to pay some $5 million to investors over issues tied to Puerto Rican Bonds and closed-end funds. A nearly $8 million arbitration award was ordered in May. In March last year, Jose Ramirez, an ex-UBS advisor was sentenced to a year in prison for taking $1 million from investors in Puerto Rico through a fraudulent scheme involving the use of credit lines to buy closed-end bond funds.
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