Merrill Survives Former Wealth Exec Sepes Racketeering Claims

15 Jan    Investing News

A Finra arbitration panel has dismissed a former Merrill Lynch wealth executive’s claim that the company’s activities leading up to the financial crisis destroyed the value of some stock and options he was awarded during part of his 30-year career with the firm.

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Brian Sepe, who at various times ran Merrill Lynch’s Northeastern wealth division, its Latin American and Canadian business and its south Florida region, missed the deadline for bringing arbitration claims within six years of an event triggering a claim, according to an award statement Finra published last Friday.  

Sepe filed his claim for compensatory and punitive damages in May 2018, alleging fraud under the Racketeer Influenced and Corrupt Organizations Act related to Merrill’s pre-financial crisis activities. His wife was added as a claimant last year.

The Sepes argued that Finra’s eligibility rules should not apply, or that the start of the six-year filing period should have been delayed because they didn’t learn of Merrill’s fraud until the Department of Justice and regulators announced a $16.65 billion settlement in August 2014 with the firm’s parent company, Bank of America.

The three arbitrators in Boca Raton, Fla., appeared skeptical.

“Brian Sepe was a decorated, long-term employee…who rose through the ranks of management and was, at some point, in charge of, and had responsibility for, one-sixth of the United States,“ the arbitrators wrote in their January 2, 2020, dismissal order.

He “provided limited testimony” to support his arguments about when he became aware of the alleged fraud, and also benefited from an earlier lawsuit involving retirement benefits, they wrote. 

Even if Finra’s rules allowed a delay in tolling the six-year claim period, it would have been improper in Sepe’s case because of his expertise and position, the arbitrators wrote. (They also discounted Sepe’s claim that he suffered losses from expiration of certain worthless stock options “as there is no allegation that the options had any value at any time….”)

“Brian Sepe was highly experienced in the industry and chose to not concern himself with prior claims against [Merrill], news, books and articles regarding allegations of fraud” prior to his filing of the arbitration claim, they wrote.

Sepe, whose Merrill career ran from March 1980 through November 2010, served briefly as dean of Miami Dade College’s business school and ran wealth management at Sterne Agee for two years after leaving Merrill, according to his LinkedIn profile. 

He is now affiliated with David A. Noyes & Co., according to Sepe’s BrokerCheck record. Noyes is an Indianapolis broker-dealer with an independent brokerage unit run by Jim Dickson, another former Merrill regional manager. 

Sepe did not respond to a request for comment on the decision, and a Merrill Lynch Wealth spokesman declined to comment.

Another Finra panel last May dismissed a similar claim for damages from former Merrill employee John Gelbach for timing and expertise reasons in a 2-1 ruling. They subsequently rescinded their decision when the claimant’s lawyer asserted that a dismissal based on filing-eligibility issues requires unanimity. 

Michael Taaffe, the Sarasota, Fla.-based lawyer who represented the Sepes and Gelbach, did not return a request for comment about the status of their cases.

Sepe was at the center of another arbitration case in which Merrill was ordered to pay $1.6 million to an adviser who claimed he was fired in 2004 because of his ethnic and religious origins. The arbitrators found that Sepe, then a complex director near Miami, had acted intentionally in abruptly terminating the broker, an Iranian Mulim. It granted $1.4 million in punitive damages as part of the award.

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