QuadPay co-founders Adam Ezra and Brad Lindenberg seek compensation from Merrill Lynch

Investment vehicles controlled by the two co-founders of buy now, pay later business QuadPay are suing Merrill Lynch, alleging the broker mishandled a share sale that still netted them $56m.

The trusts associated with Adam Ezra and Brad Lindenberg also claim that Merrill Lynch failed to disclose a possible conflict of interest because it had previously done work for ASX-listed buy now-pay later firm Zip. Picture: NCA NewsWire/David Mariuz

Investment vehicles controlled by the two co-founders of the buy now, pay later QuadPay business are suing Merrill Lynch, alleging the investment banking giant bungled a share sale which still netted them $56m.

The trusts associated with Adam Ezra and Brad Lindenberg also claim that Merrill Lynch failed to disclose a possible conflict of interest because it had previously done work for ASX-listed buy now-pay later firm Zip.

Merrill Lynch is defending the case, filed in the NSW Supreme Court in October and expected to resume in March.

Mr Ezra and Mr Lindenberg were co-founders of New York-based QuadPay, which launched in 2017 and was acquired by Zip for $403m in June last year. Both men now oversee Zip USA.

According to the court documents, Mr Ezra’s AJE Company Pty Ltd and Mr Lindenberg’s Bleeker Street Pty Ltd agreed to sell their holdings in QuadPay to Zip in exchange for Zip shares.

The transaction was completed late the following month, with the companies amassing 6.5 million and 6.3 million Zip shares respectively. Merrill Lynch was then retained to sell the shares and recommended that the best strategy was to offload them via an off-market “block trade’’ on or after September 1 2020, the pleading says.

But PayPal’s announcement on August 31, 2020 that it would enter the buy now-pay later sector with its “Pay in 4’’ business sent the share price of competitors plummeting, with Zip stock falling from $9.16 to $7.99.

“As a result, the shares were ultimately sold for a lower price than the price for which they would have been sold if the trades had been executed on-market on and from 1 September 2020,’’ the documents say.

Merrill Lynch’s continued recommendation of the trade despite the impact of the PayPal announcement “breached its contractual, tortious, fiduciary and statutory duties to the plaintiff’’, it is claimed. When the market opened on September 2, 2020, Merrill Lynch sold 8 million Zip shares controlled by the two companies for $56.25m, according to the court filings.

The next day, the agreement with Merrill Lynch was terminated and rival broker Shaw and Partners was retained to sell down the balance of the Zip stock, which recouped $26.5m.

Merrill Lynch denies that its actions to sell the parcel of shares – constituting 2.5 per cent of Zip’s stock – was “negligent or breached any contractual or fiduciary obligations’’. “The parties were negotiating the terms of the block trade agreements … but it was never finalised and the block trade did not proceed,’’ the bank’s court documents say.

Originally published as QuadPay co-founders Adam Ezra and Brad Lindenberg seek compensation from Merrill Lynch