Financial Advisor IQ (February 19, 2019) - An investor alleges in a new breach-of contract lawsuit that he invested about $500,000 with Merrill Edge, Bank of America’s self-directed online investment service, after the bank’s lending officers pledged that by doing so he would lock in a lower refinance rate for his home loan.
But after he transferred his assets to a Merrill Edge account, its parent bank’s underwriters rejected his loan application three times, based on their allegedly faulty information and “incompetent” due diligence, according to the new lawsuit filed in a federal court by Peter Bakalis.
Bakalis, who resides in the Detroit suburb of Beverly Hills, Mich., alleges he will suffer $9,300 in damages per year because the bank’s lending officers falsely promised a 3.5% loan rate, causing him to forgo other lenders’ offers.
Ultimately, he had to settle for 4.5% rate. In his lawsuit, Bakalis calculates additional damages based on allegedly $4,000 in “unauthorized trades” in his Merrill Edge account as well as brokerage closeout fees and costs related to his transfer of funds to the self-directed account.
Thomas Warnicke, a lawyer also based in Beverly Hills, Mich., who represents Bakalis, did not return a request for comment.
“We can’t comment about individual clients, but our disclosures make it clear that clients must be eligible to receive discounts under our various programs,” a spokesman for Merrill Lynch comments in response to questions about the lawsuit.
Lawyers not directly involved in the legal battle offered their views about the new case — some deeming the lawsuit significant with others labeling it a one-off.
Andrew Stoltmann, a Chicago-based plaintiff lawyer and a director and past president of the Public Investors Arbitration Bar Association, notes that other financial institutions, including JPMorgan Chase, promise lower home loan rates if customers transfer set minimum amounts of assets to their broker-dealer subsidiaries’ trading accounts.
“This is an industry-wide problem. All the banks are trying to get more assets under management,” Stoltmann says.
Bakalis’ lawsuit may have flagged potential issues with those marketing strategies, Stoltmann says. “It could be the tip of the iceberg,” he says. Bakalis’ complaint also could spawn similar claims from others. “One lawsuit can be the match that sparks the flame,” Stoltmann adds.
But Bradley Bennett disagrees.
Bennett is a former head of Finra enforcement who practices law in Washington, D.C., and usually defends broker-dealers.
“This seems more like a customer service issue. This guy is just trying to get his 3.5% rate. It’s not even a class action. To me it’s not a broader case,” Bennett says.