Merrill Lynch

US Lawmakers Want SEC and Treasury Department to Answer Questions About Merrill Lynch Executive Bonuses and TARP Funds

Published on: April 15, 2009 | by Shepherd Smith Edwards & Kantas, LLP

US lawmakers are asking government regulators some tough questions about executive compensation at investment banks. Last week, Rep Dennis Kucinich, who heads the House Oversight Committee’s Domestic Policy Subcommittee, asked the Securities and Exchange Commission to determine whether Bank of America Corp. violated federal securities laws when it did not tell shareholders that Merrill Lynch was going to pay executives $3.62 billion in bonuses. Kucinich noted that these bonuses were 22 times larger than what AIG executives were offered-equivalent to 36.2% of the Troubled Asset Relief Program (TARP) funds that Merrill received.

A March filing by New York Attorney General Andrew Cuomo (whose office is also pursuing this matter) claims that even though the firm had already made the decision to accelerate bonus payments, Merrill told Cuomo and the House Oversight Committee that it planned to make incentive compensation decisions at the end of the year. Cuomo claims that Bank of America neglected to tell shareholders that Merrill was going to offer executives big bonuses before the BofA merger was final.

When BofA was questioned about Cuomo’s claims, the bank said it revealed everything it was required to before the shareholders voted on the merger. Kucinich says that this makes him wonder about the SEC’s interpretation of fiduciary duty when it comes to revealing all “material” data to shareholders when asking for shareholder action and what is considers “material” information for proxy rules meant to protect investors under the Securities Exchange Act of 1934.

He asked the SEC whether it thinks that B of A’s omission is a material one and, if so, what it would do to redress it. The House Oversight Committee is trying to determine whether officials from Bank of America and Merrill misled Congress about the executive bonuses and their timing.

Meantime, Rep. Edolphus Towns, who oversees the House Committee and Oversight Reform, told Treasury Secretary Tim Geithner that he was worried about media reports that the Treasury Department was trying to “circumvent” statutory restrictions regarding executive pay for companies availing of TARP funds. Towns wants Geithner to respond to news reports that the Treasury Department established special entities to receive federal bailout funds that could then be channeled toward corporate recipients so as to avoid executive pay restrictions and requirements that the US get an ownership interest in the bailout firms. Towns cautioned that it would not be wise for the Treasury Department to allow excessive pay practices to continue at firms that taxpayers had bailed out.

Kucinich Asks If Merrill Bonuses Broke Laws, NY Times, April 7, 2009
Read Representative Towns’ Letter to Treasury Secretary Geithner (PDF)
Continue Reading ›

Merrill Lynch & Co Ordered to Pay FINRA Arbitration Panel $39.8 Million

Published on: April 5, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch & Co. must pay an investor $39.8 million in compensatory damages because of negligence on the part of one a subsidiary broker-dealer. A Financial Industry Regulatory Authority arbitration panel issued the award to Trustees of the Masonic Hall & Asylum Fund, which is an endowment for an Utica health-care facility. This is one of the largest awards against a Wall Street firm.

The fund’s arbitration claim had accused Merrill Lynch and subsidiary Advest Inc. of misrepresentation, negligence, breach of fiduciary duty, and breach of contract. The claim had also accused Advest Inc. of encouraging it to buy into Sphinx Managed Futures Index Fund LP, which was owned by Refco Inc. However, Refco Inc. collapsed in 2005 after giving notice that its chief executive had concealed bad debts valued at about $430 million from firm auditors. The fund says it lost money because of Advest Inc.’s poor recommendation.

The FINRA panel awarded the fund $30.6 million plus $9.2 in interest from as far back as November 2005. Merrill Lynch announced that it was not pleased with the ruling and says that the case stemmed from investments that occurred before the Wall Street firm acquired Advest.

The FINRA panel said Merrill Lynch can seek damages in bankruptcy proceedings for the Refco unit in charge of the Sphinx fund, and the broker-dealer says it will do so.

One way for investors who have lost money because of securities fraud to recover their investments is to go through the arbitration process.

Related Web Resources
Merrill to Pay $40 Million in Refco Case, Wall Street Journal, March 30, 2009
Merrill socked with historic arbitration ruling, Crain’s New York Business, March 31, 2009 Continue Reading ›

Merrill Settles SEC Charges Over ‘Squawk Box’ Misuse for $7 Million

Published on: March 22, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch will pay $7 million to settle Securities and Exchange Commission administrative charges that the investment bank neglected to protect customers whose orders were transmitted over “squawk boxes.” The penalty is the second highest fine that the SEC has imposed for cases involving Section 15(f) of the 1934 Securities Exchange Act and Section 204A of the 1940 Investment Advisers Act violations. These statutes mandate that investment advisers and broker dealers implement procedures and policies that would keep employees from misusing nonpublic, material data.

The SEC says that from 2002 to 2004, a number of Merrill Lynch brokers at three branch offices let day traders, who did not work for the company, hear customers’ unexecuted orders as they were being broadcast over the internal intercom systems. The traders used the information to trade before Merrill’s institutional clients’ orders were placed.

The SEC says Merrill did not have the procedures or polices to prevent employees from accessing the squawk boxes or to supervise them to make sure that they did not misuse customer order data. In addition to paying the penalty, Merrill Lynch says it will implement a number of measures to ensure that customer order data is protected any time it is sent over squawk boxes or other technologies used for their transmission.

U.S. Attorney for the Eastern District of New York had filed criminal charges related to the squawk box front-running activities against a number of Merrill employees, A.B. Watley Group Inc., and several individuals. While seven defendants were acquitted of nearly all the charges, they must go back to trial for a single count of conspiracy to commit securities fraud. Former Merrill stockbroker Timothy O’Connell was found guilty of witness tampering and issuing false statements.

Merrill Lynch, Pierce, Fenner & Smith Inc To Settle SEC Charges of Pension Consulting Business-Related Violations for $1 Million

Published on: February 18, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, Pierce, Fenner & Smith Inc has reached a $1 million settlement agreement with the Securities and Exchange Commission over charges that the broker-dealer misled its pension consulting clients by neglecting to disclose conflicts of interest. By agreeing to settle, Merrill Lynch is not denying or admitting wrongdoing. The investment firm will, however, cease and desist from committing future violations.

According to the SEC, Merrill Lynch recommended that clients pay hard dollar fees using directed brokerage. The firm’s investment advisers, however, failed to mention that choosing this option-which would direct trades to be executed through Merrill-could allow the company and its investment adviser representatives to receive substantially higher revenues. The SEC also accused Merrill Lynch of neglecting to reveal a similar conflict of interest when it recommended to clients that they utilize the firm’s transition management desk and of making misleading statements about the firm’s process for identifying new money managers.

SEC charges against Merrill Lynch include anti-fraud provision violations, failure to maintain specific records, and failure to supervise its investment advisers in the Ponte Vedra South office in Florida.

Also cited by the SEC for misleading pension consulting clients about the way Merrill identified new money managers is Jeffrey Swanson. The former Merrill adviser agreed to case and desist from violating the 1940 Investment Advisers Act in the future. By agreeing to the censure, however, Swanson is not admitting to or denying wrongdoing.

The SEC also censured former Merrill Lynch adviser Michael Callaway for breach of fiduciary duty when he made misrepresentations about the manager identification process and his compensation related to transition management services. The SEC says Callaway should have made sure that any conflicts of interest should have been revealed to clients. Both Callaway and Swanson were from the Florida office.

The SEC says that the outcome of this case should remind investment adviser representatives that they must disclose all conflicts of interest when offering advice to clients.

Merrill Lynch Pierce Fenner & Smith Does Not Have to Halt Redemption of ARS Clients, Says Court

Published on: February 11, 2009 | by Shepherd Smith Edwards & Kantas, LLP

In the U.S. District Court for the Southern District of New York, Judge Shira Scheindlin said that TGS- GS-NOPEC Geophysical Co failed to convince the court that the institutional investor would suffer irreparable harm if Merrill Lynch Pierce Fenner & Smith Inc. continues redeeming clients’ ARS under the investment firm’s current procedures. The judge refused to stop the redemptions and said that the geographical exploration company has admitted that any harm caused by an improper redemption procedure can later be remedied.

Following the collapse of the auction-rate securities market, Merrill Lynch devised a redemption plan to help restore some liquidity to investors, whose ARS were now frozen. The scheme allows the investment bank to redeem partial liquidity to its clients. Anytime an issuer declared a partial redemption, Merrill would note a $25,000 share from each client account before giving out the remaining shares through a proportionate lottery.

Since October 2008, GS-NOPEC Geophysical Co held some $64.5 million in ARS accounts with Merrill. The company claims that Merrill’s redemption scheme is not in its favor.

TGS began FINRA arbitration proceedings against Merrill in November. The company wants to repurchase its ARS with interest, recession purchases, or the actual damages of its holdings’ par value. TGS later filed for injunction pending arbitration and asked the court to mandate that Merrill Lynch allocate prior and future partial redemptions solely in proportion to holdings.

The court refused. The judge said that any harm that TGS incurs can be remedied financially, which is what the company is seeking via arbitration.

TGS-NOPEC Geophysical Company v. Merrill Lynch, Pierce, Fenner & Smith, Inc., Federal District Court Filings and Dockets, Justia

Related Web Resources:
TGS-NOPEC Geophysic Continue Reading ›

Merrill Lynch, J.P. Morgan and Others fail to Obtain Dismissal of IPO Case by Houston Judge

Published on: February 9, 2009 | by Shepherd Smith Edwards & Kantas, LLP

In Texas, a Houston judge has ruled that a would-be class securities lawsuit filed against JP Morgan Securities, Inc., Merrill Lynch, Pierce, Fenner and Smith and a number of other defendants can move forward. The plaintiffs were investors in Superior Offshore International Inc., a company that collapsed following a failed initial public offering. The four other defendants are former Superior company executives.

In the US District Court for the Southern District of Texas, Judge Nancy Atlas found that the plaintiffs met their burden when pleading material misrepresentations and omissions in Superior’s registration statement. She denied the defendants’ request to dismiss the complaint.

Superior Offshore International Inc. had provided commercial diving services and subsea construction to the natural gas and crude oil industry in the Gulf of Mexico. The company began IPO proceedings of about 10.2 million commercial shares at $15/share in April 2007. Merrill Lynch and JP Morgan acted as the primary underwriters. It was after this that Superior experienced major losses and its price dropped until it reached $1.08/share in April 2008. Soon after, Superior announced that it was shutting down operations.

In their consolidated class action, the plaintiffs claimed that while the registration statement revealed that the Superior board chairperson’s two sons were receiving salaries of $48,000 and $120,000, it failed to note that the two men weren’t doing any significant tasks for their respective incomes. The plaintiffs also questioned Superior’s claims that there was a high demand for its services and that certain hurricane-related projects were expected to continue for a number of years when, in fact, that work had declined significantly. They challenged Superior’s claim that it had multiple customers and maintained that the company had provided materially misleading data about its management team.

The defendants had tried dismissing the complaint by citing a failure to state a claim. They said they could not be held liable for events that transpired after the IPO. While the Texas court said it recognized that Superior’s registration statement included warnings about possible risks that could arise, it determined that the plaintiffs were not questioning the accuracy of the potential risks that were noted. Rather, the court said they were challenging the completeness and accuracy of the information Superior had provided about its current state at the time of the IPO. Continue Reading ›

Merrill Lynch Ends Investor and Employee Class Action Lawsuits with $550 Million Settlement

Published on: February 2, 2009 | by Shepherd Smith Edwards & Kantas, LLP

Last month, Merrill Lynch & Co. reached a $550 million settlement with investors and employees over losses related to investments in subprime mortgage-backed assets. A court must approve the proposed settlements.

In the securities class action case, the plaintiffs have accused Merrill Lynch of using statements on collateralized debt obligations and other assets to inflate the market price of its own shares. As a result, the plaintiffs contend, investors lost money.

The Ohio State Teachers Retirement System is the lead plaintiff in the class action lawsuit, which represents investors who bought preferred shares between October 17, 2007 and December 31, 2008. The agreed upon settlement is $475 million in cash.

Plaintiffs of the Employee Retirement Income Security Act class action have agreed to settle for $75 million in cash. Participants in the ERISA lawsuit are Merrill Lynch employees with Merrill Lynch stock in specific retirement plans. The plaintiffs have accused Merrill of failing to adequately reveal subprime-related losses that impacted its retirement accumulation plan, its savings and investment plan, and its employee stock ownership plan.

By agreeing to settle, Merrill Lynch says it is not admitting to any wrongdoing.

Fallout from the Subprime Mortgage Crisis
The subprime mortgage crisis has resulted in millions of dollars in losses for investors. If you believe that you were a victim of investor fraud or broker dealer misrepresentation and that these inappropriate actions caused you to sustain investor losses, you may be entitled to the recovery of those losses.

Related Web Resources:
Ohio announces $475M Merrill Lynch settlement, Forbes.com, January 16, 2009 Continue Reading ›

Merrill Lynch NY Branch Manager is No Longer with the Firm

Published on: December 5, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch & Co. is confirming that Branch Manager Joseph Mattia no longer works for the investment firm’s global wealth-management group. Mattia supervised 200 financial advisors in Merrill Lynch’s 5th Avenue office.

A spokesperson for Merrill Lynch refused to provide details. CNN reports that Mattia left the firm. Investment News, however, says that Mattia was escorted from the building on Monday. Industry insiders say there are a number reasons why a branch manager might be let go. Personnel problems and compliance issues are just two reasons.

Also on Monday, Merrill Lynch severed ties with Rosalie H. Fields, an adviser who also worked at the New York branch. Fields was one of 900 female brokers that filed a class action lawsuit against Merrill Lynch accusing the firm of gender discrimination. A settlement was reached with almost all of the plaintiffs.

Meantime, Bank of America, Corp. is still expected to acquire Merrill Lynch during the first quarter. Merrill Lynch is one of the bigger investment firms that took huge financial hits because of the credit crunch. Today, several hundred people showed up at a meeting at Merrill Lynch’s New York offices to vote on the merger between Bank of America and Merrill Lynch.

Bank of America shareholders also got together today to ratify the $50 billion acquisition. Because of Bank of America’s falling share price, however, the value of the deal has dropped by $30.3 billion since September and is now worth $19.7 billion. Continue Reading ›

NASAA Says Investors with Frozen Auction-Rate Securities Should Ask Investment Firms About Buyback Opportunities

Published on: November 19, 2008 | by Shepherd Smith Edwards & Kantas, LLP

The North American Securities Administrators Association is reminding investors to ask the investment firms that sold them any now-frozen auction-rate securities about repurchase opportunities. Following the ARS market collapse, securities regulators in 12 US states joined together to form a multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.

As part of their settlement agreements reached with the firms in question, 11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies. However, these repurchase offers may not be available indefinitely.

NASAA President Fred Joseph says the best way to avail of any redemption offers is to contact the investment firms as soon as possible. So far, 11 firms have agreed in principle to buy back over $50 billion in ARS. NASAA says additional repurchase opportunities are expected to become available in the coming months.

Investment Firms with ARS Hotlines:

Bank of America 1-866-638-4183 Deutsche Bank 1-866-926-1437 Citi 1-866-720-4802 JP Morgan 1-866-450-8470 Goldman Sachs 1-888-350-2857 Merrill Lynch 1-888-706-1381 UBS 1-800-253-1974 Morgan Stanley 1-800-566-2273 Wachovia 1-866-283-794
Meantime, more investigations are under way into the sales practices of US firms that marketed and sold auction-rate securities to investors. Unfortunately, many investors who were told ARS were liquid investments are now dealing with frozen securities and cannot access their funds.

If you invested in the auction-rate securities industry and your ARS became frozen during the market’s collapse, you may be the victim of securities fraud.

Related Web Resources:
Small firms caught in ARS buyback vise, November 16, 2008 Continue Reading ›

District Court Confirms Merrill Lynch Arbitration Award in Investor Dispute

Published on: November 12, 2008 | by Shepherd Smith Edwards & Kantas, LLP

Merrill Lynch, Pierce, Fenner & Smith, Inc. and a number of its workers have won an arbitration dispute filed by a couple that invested in a money market mutual fund. In U.S. District Court for the Southern District of New York, Judge George Daniels confirmed the award.

Konstantinos Karetsos and Greta Rothstein began their New York Stock Exchange arbitration in February 2006. The married couple accused Merrill Lynch and several of its employees of alleged deceit, fraud, conspiracy, deceptive practices, misrepresentation, obstruction of justice, material omissions, unauthorized transactions, unsuitable investments, gross negligence, breach of fiduciary duty, and account management related to their money market fund purchase.

Arbitration proceedings took place over a six-day period. On the 4th day, the arbitration panel dismissed claims against three Merrill Lynch employees with prejudice. At the end of the proceedings, more claims against Merrill Lynch and a fourth employee were dismissed with prejudice.

The arbitration panel also found that claims against one Merrill Lynch employee were obviously erroneous and that the couple had filed claims against another employee who did not take part in the “alleged investment-related sales practice violations.”

According to the district court, the opposition that was noted in the couple’s pro se pleadings appeared to be based on many of the arguments they made in arbitration. Judge Daniels also said that the couple’s “vague and conclusory” terms” impugned the arbitration panel’s “integrity and neutrality.”

Commenting on Merrill Lynch’s arbitration award, Securities Arbitration Attorney William Shepherd said, “Investors who do not hire a lawyer, or hire one without experience in securities arbitration, fare very poorly in claims against brokerage firms. While securities arbitration has less formalities than court cases, investors simply cannot alone understand how to properly present their claims to the arbitrators.”

Related Web Resources:

Rothstein et al v. Fung et al, Justia
Change in Arbitration Panels Will Allow Investors Only, NY Times, July 25, 2008 Continue Reading ›