(Dow Jones) Two financial advisors won $2 million in arbitration from a retirement-plan advisory firm they left Merrill Lynch to join in 2008, only to be let go the following year.

National Retirement Partners sought to have the Indianapolis advisors, Wade Walker and Jeffrey Bafs, return funds the company said they owed through a corporation NRP purchased to buy their practice. It also accused them of violating transition agreements. But a panel of the Financial Industry Regulatory Authority ruled that the claims by the company and two subsidiaries were "frivolous, unreasonable, groundless, and made in bad faith," according to the award document.

The panel awarded a total of $2 million to the two advisors, who had filed their own claim accusing the company, based in San Juan Capistrano, Calif., of defamation, theft of clients, disclosure of confidential information and other offenses.

NRP must pay Bafs $1 million and Walker $500,000 in compensation for damages, as well as $508,000 in legal and other fees, according to the award. The legal fees were deemed a sanction against NRP.

Walker and Bafs, along with nine other advisors on their sales team, left Merrill Lynch, a unit of Bank of America Corp. (BAC) in 2008 to become affiliated with NRP's broker-dealer subsidiary, NRP Financial Inc. The advisors' practice focused exclusively on retirement-plan clientele and didn't quite fit the retail brokerage business model at Merrill Lynch, according to their lawyer, Scott Matasar of Cleveland.

They intended to move to a firm that observed the industry's recruitment protocol, which allows advisors to take basic client contact information with them when they move to a new firm, Matasar said. He said NRP represented itself as a signatory to the protocol but wasn't. Merrill sued to prevent the team from taking client information and soliciting existing clients and won an agreement that the team would not approach any of the clients for three months, according to the lawyer.

The team's business suffered and NRP required them to resign in March 2009, said Matasar. NRP then rehired three junior, less costly members of the team to service the remaining clients' plans, according to Matasar. "My clients basically had their legs cut off from them," he said. Neither Walker nor Bafs are now working in the industry, he said.

A spokeswoman for National Retirement Partners declined to comment on the allegations or the award.

A Merrill Lynch spokesman confirmed that its case against Walker and Bafs was resolved but declined to comment on the settlement terms, citing confidentiality.

The FINRA panel's ruling is unusual, according to Andrew Park, a securities lawyer in Richmond, Va. "It is very rare for any arbitration panel to find that a claim was groundless," said Park in an email. The award hints that the panel's primary concern may have been conduct during the arbitration proceeding, he said.

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